Last month, the Financial Crimes Enforcement Network (“FinCEN”) published proposed regulations to implement the Corporate Transparency Act (“CTA”), which was enacted into law on January 1, 2021. The CTA is designed to help prevent the use of anonymous shell companies in money laundering and other illicit activities by requiring U.S. companies to report personally identifiable information about their owners to FinCEN. Once the proposed regulations are finalized, the CTA is expected to have a sweeping impact on small businesses in the U.S.
The reporting requirements of the CTA apply to domestic private corporations and limited liability companies, as well as foreign entities doing business in the United States. “Large operating companies” are exempt from the CTA’s reporting requirements, which is defined to mean any company that: (a) employs more than 20 employees on a full-time basis in the United States; (b) filed federal income tax returns in the prior year demonstrating more than $5,000,000 in gross receipts or sales; and (c) has an operating presence at a physical office within the United States.
Reporting companies will need to submit to FinCEN a Beneficial Ownership Information (“BOI”) Report. The BOI Report must include, for each beneficial owner and company applicant, the individual’s full legal name, date of birth, current residential or business street address, and either a unique identifying number from an acceptable identification document (e.g., a passport) or a FinCEN unique ID. A “beneficial owner” is defined by the CTA as any individual who, directly or indirectly either: (1) “exercises substantial control” over the reporting company; or (2) “owns or controls” at least 25% of the ownership interests of the reporting company.
Under the proposed rules, domestic reporting companies created before the effective date of the final regulation would have one year to file their initial reports; reporting companies created or registered after the effective date would have 14 days after their formation to file. The same deadlines would apply to existing and newly registered foreign reporting companies.
Reporting companies would have 30 days to file updates to their previously filed reports, and 14 days to correct inaccurate reports after they discover or should have discovered the reported information is inaccurate.
While the CTA has been praised by some as a necessary tool to combat money laundering and the financing of terrorism, it will undoubtedly have significant implications for many small businesses in the United States. Business owners should be mindful of the new burdens imposed by the CTA and take the steps necessary to ensure compliance once the reporting requirements go into effect.