Many U.S. companies are now subject to a bipartisan federal law that aims to boost corporate transparency and counter illicit activities within the United States. As of January 1, 2024, regulations implementing the Corporate Transparency Act (CTA) are in effect. It’s important for corporate and business leaders to know if they are subject to the law—which enhances corporate and other business entity transparency to combat money laundering, terrorist financing, corruption, and tax fraud—and what steps they should take to comply.

As we reported previously, final CTA regulations were promulgated last fall. These regulations mandated certain entities disclose their controlling officers/principals and certain other beneficial ownership information to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Here are the key highlights of the CTA regulations:

Who Must Report

Many privately owned Domestic corporations, limited liability companies (LLCs), limited partnerships, and similar entities formed under State or Indian Tribe laws may be considered “Reporting Companies”. Foreign entities conducting business in the United States may also fall under this classification. There are certain exclusions from status as a Reporting Company for large companies located in the U.S. with at least 20 full time employees and $5 million or more in gross revenue or sales, certain banking and other government-regulated businesses, and certain other limited exclusions.

What Must Be Reported

Reporting Companies formed before January 1, 2024, are required to submit information about the Reporting Company and its beneficial owners who (directly and indirectly) own 25% or more of the ownership interests in the Reporting Entity and those officers, directors, general partners/managers and other persons with substantial control over the Reporting Company (without requirement of any ownership). Substantial control is broadly defined to include the ability to make, direct or influence important decisions. For those Reporting Companies formed on or after January 1, 2024, in addition to the foregoing information reports must include additional information about submitting the required information to FinCEN.

Treatment of Trusts

Reporting Companies must identify and report any natural person exercising substantial control through a trust and qualifying as a beneficial owner.

Effective Dates of Obligations

Reporting Companies formed or registered before January 1, 2024, must submit beneficial ownership information to FinCEN by January 1, 2025. Those formed or registered on or after January 1, 2024, must submit information within 30 days of formation or registration (although an extension is currently in place granting 90 days for newly formed entities).

Sanctions for Noncompliance

Penalties, including fines and imprisonment, are outlined for intentional provision of false information, failure to submit complete reports, and unauthorized disclosure or use of beneficial ownership information.

We strongly encourage all who may be impacted by these regulations to connect with knowledgeable counsel to meet impending deadlines and take necessary steps to ensure compliance. Please reach out with any queries so we can help you navigate these regulatory changes.