Congress passed and enacted into law the Corporate Transparency Act (the “Act”) on January 1, 2021, imposing new beneficial ownership reporting requirements on many companies.
Unless otherwise exempted, the reporting requirements of the Act apply to all “reporting companies,” which is defined as “any corporation, limited liability company or similar entity that is (i) created by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe; or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.”
The Act also specifies a detailed list of entities excluded from the beneficial ownership reporting requirements, which includes, among others, (i) any entity that (A) employees more than 20 employees on a full-time basis in the United States; (B) filed a federal tax return that reported more than $5 million in gross receipts of sales (including by subsidiaries and operating affiliates) and (C) has an operating presence at a physical office within the United States; (ii) public companies; and (iii) certain entities that are already subject to supervision or have existing reporting requirements to financial regulatory authorities, such as banks and bank holding companies, credit unions, broker dealers, registered investment companies and registered investment advisers.
Under the Act, a reporting company is required to identify each beneficial owner and applicant and report the individual’s full legal name, date of birth, current residential or business address, and a “unique identifying number from an acceptable identification document” or an FinCEN (Financial Crimes Enforcement Network) identifying number. A “beneficial owner” of a reporting company is “any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise – (i) exercise substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” An “applicant” is any individual who files an application to form a reporting company or registers or files an application to register a foreign company to do business in the United States.
The Act authorizes substantial penalties, civil and criminal, for willfully providing, or attempting to provide, false or fraudulent information or willfully failing to report complete or updated information.
Note that FinCEN is required to issue regulations to implement the new beneficial ownership reporting requirements by December 31, 2021. A reporting company that has been formed before the effective date of FinCEN’s regulations is required to submit a beneficial ownership report no later than two years after the effective date. A reporting company formed after such effective date must submit a report at the time of formation.