The First Deadline for Corporate Transparency Act Beneficial Ownership Information Reporting is Rapidly Approaching

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Effective January 1, 2024, companies doing business in the United States are subject to new reporting requirements under the Corporate Transparency Act ("CTA"), which was passed by Congress at the end of 2020 and related implementing regulations. The reporting deadline for companies formed or registered in 2024 could be as early as the end of March 2024.

The CTA is part of the U.S. government's effort to promote transparency with beneficial ownership information ("Beneficial Ownership Information" or "BOI") in an effort to detect and minimize terrorism, money laundering, and other business crimes. Entities subject to the CTA must comply with reporting obligations that require disclosure of information about their beneficial owners. Reporting companies must file their BOI with the Financial Crimes Enforcement Network ("FinCEN"), a bureau of the Department of Treasury in charge of administering and enforcing the CTA. On March 1, 2024 a U.S. District Judge in Alabama ruled that the CTA is unconstitutional, and enjoined its enforcement against the plaintiffs in that case. FinCEN has not yet published a response to the ruling.

Official reference materials can be accessed through FinCEN's website. The available resources include the CTA and related rules and regulations, as well as additional guidance such as Beneficial Ownership Information Reporting Frequently Asked Questions and Beneficial Ownership Information Small Business Resources.

On December 22, 2023, New York State enacted the New York LLC Transparency Act, which will enter into effect on December 21, 2024 and will impose certain set of disclosure requirements on limited liability companies. Proposals for similar legislation are also pending other states.

Which entities must report beneficial ownership under the CTA?

Under the CTA, there are two types of "reporting companies":

i. a "domestic reporting company", which is a corporation, limited liability company, partnership (depending on the laws of the state of formation), or other similar entities formed by filing a document with the secretary of state or a similar office of a U.S. state or Indian tribe; and

ii. a "foreign reporting company", which is a corporation, limited liability company, or other similar entity formed under foreign law and which has qualified to do business in the United States by filing a document with a secretary of state or similar office of a U.S. state or Indian tribe.

FinCEN has indicated that it views the reporting companies definitions as capturing limited liability partnerships, most limited partnerships and business trusts, in addition to corporations and LLCs, because such entities are generally created by a filing with a secretary of state or similar office. On the other hand, trusts that are not created by the filing of a document with a secretary of state or similar office are not captured by the definitions.

Which entities are exempt from reporting beneficial ownership under the CTA?

The CTA provides for 23 exemptions from the definition of reporting company. The exemptions largely cover entities that are already subject to substantial U.S. federal and/or state regulation or reporting requirements under laws other than the CTA.

One such exemption is for "large operating companies", which is defined as a company that has more than 20 full-time U.S. employees, has an operating presence with a physical office in the United States, and has filed a U.S. federal income tax or information return for the preceding year demonstrating gross receipts or sales in excess of $5 million (excluding gross receipts or sale from sources outside the United States). Other significant exemptions include: public companies and other entities registered with the Securities and Exchange Commission (SEC) under the Securities and Exchange Act; entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act; accounting firms registered with the Public Company Accounting Oversight Board; banks and credit unions; insurance companies and certain insurance brokers; registered investment companies and investment advisers, and other pooled investment vehicles operated or advised by certain other exempt entities; tax-exempt entities; and inactive entities. In addition, entities whose ownership interests are wholly owned or controlled by certain specified exempt entities (such as large operating companies) are also exempt. Importantly, the reporting requirements are expected to apply to most small business and start-up companies.

What information must be reported?

Generally, information about the reporting company and its beneficial owners must be submitted. Reporting companies must report the following information:

• Legal name and alternative names;
• U.S. business street address or U.S. primary location;
• Jurisdiction of formation or registration; and
• Taxpayer ID or, for foreign entities, a tax identification number provided by the foreign jurisdiction and the name of the foreign jurisdiction.

Also, all of the reporting company's "beneficial owners" are required to provide the following information:

• Legal name;
• Date of birth;
• Address; and
• The identifying number, issuer, and an image of a valid U.S. driver's license, passport, or document issued by the state, local government or Indian tribe or, a valid foreign passport.

For reporting companies created or registered on or after January 1, 2024, in addition to this, certain information about company applicants must be reported.

Who is a beneficial owner?

A "beneficial owner" is defined as an individual who, directly or indirectly, either exercises "substantial control" over the reporting company, or owns or controls at least 25% of the "ownership interest" in the reporting company. Substantial control and ownership interests are viewed expansively. A person has substantial control over a reporting company not only if the person directs or determines, but also if the person has substantial influence over important decisions of the reporting company regarding its business strategy, operations, or governance. A person serving as a senior officer or having authority over appointment or removal of a senior officer or a majority of the members of the board of directors or similar governing body is deemed to exercise substantial control. Ownership interest includes voting and non-voting capital stock and similar equity interests, as well as capital or profits interest and options, convertible securities and other instruments and rights entitling a person to purchase or otherwise acquire capital stock or capital or profits interests in the reporting company.

There are exceptions that relieve certain beneficial owners from the CTA reporting requirements, including minor children, certain intermediaries, and future inheritors. In the case of minor children, however, a parent or legal guardian must provide the required information.

Beneficial ownership is attributed only to individuals and not to legal entities. If a reporting company is owned directly or indirectly by a legal entity, the beneficial ownership analysis must be conducted with respect to the individuals who are the ultimate owners.

Who is a company applicant?

A company applicant is an individual who directly files the reporting company's formation or registration documents in the U.S. If a different individual is primarily responsible for and directs or controls such filing, that individual is also a company applicant. There can be up to two company applicants.

What are the deadlines for filing BOI with FinCEN?

Once an initial BOI report is filed, no further regular periodic filing is required. However, a reporting company must update its BOI report if any of the information changes. Generally, updated filings are required in the following instances: (i) if any change in the information reported about the reporting company or any beneficial owner; (ii) if the reporting company meets the criteria for any of the twenty-three exemptions; or (iii) if the reporting company knows or has reason to know that inaccurate or false information has been filed in the BOI report.

The deadlines for submitting BOI reports are as follows:

• For reporting companies formed or registered before January 1, 2024, the reporting deadline is any time before January 1, 2025.
• For reporting companies formed or registered on or after January 1, 2024 and on or before December 31, 2024, the deadline is 90 days after the earlier of: 1) receipt of actual notice of formation or registration from a secretary of state or similar office; and 2) the date on which a secretary of state or similar office first provides public notice of formation or registration (i.e., through a publicly available registry).
• For reporting companies formed or registered on or after January 1, 2025, the deadline will be 30 days after the earlier of: 1) receipt of actual notice of formation or registration from a secretary of state or similar office; and 2) the date on which a secretary of state or similar office first provides public notice of formation or registration (i.e., through a publicly available registry).
• Any changes or updates to a BOI report are due within 30 days after the date of the change or update occurs.

How is a filing made?

BOI reports must be submitted through FinCEN's BOI E-Filing System, available online.

Who can access the BOI reports?

BOI reports are not publicly available and access to them is limited to the following categories of entities for national security, law enforcement, and related purposes: (i) U.S. federal agencies engaged in national security or intelligence activities; (ii) U.S. Federal, state, local, Tribal, and foreign law enforcement agencies; (iii) the U.S. Department of the Treasury; and (iv) financial institutions required to comply with regulatory customer due diligence obligations and the regulators that monitor their compliance.

What are the consequences for failing to comply with the CTA?

The CTA provides for both civil penalties (of fines of up to $500 for each day the violation continues) and criminal penalties (a fine of up to $10,000, imprisonment for no more than two years, or both) for willful violations (including willfully filing false or fraudulent information). Liability for failure to comply with the CTA may be imposed on both the reporting company and the individual or senior officer who causes the failure.

Understanding these obligations is key to avoiding potential penalties. Should you need assistance navigating this new corporate obligation, Curtis is here to help.

For legal advice on CTA related matters, our firm would need to consider each specific situation and corporate structure. This client alert is intended as an overview only and should not be relied on as legal advice.

About Curtis

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm. Headquartered in New York, Curtis has 19 offices in the United States, Latin America, Europe, the Middle East and Asia. Curtis represents a wide range of clients, including multinational corporations and financial institutions, governments and state-owned companies, money managers, sovereign wealth funds, family-owned businesses, individuals and entrepreneurs.

For more information about Curtis, please visit www.curtis.com.

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