Corporate Transparency Act’s beneficial ownership information reporting requirement

Corporate Transparency Act goes into effect on January 1, 2024, at which point every “reporting company” with “benificial ownership” will have to file a report with the Financial Crimes Enforcement Network (FinCEN).

Initial reports for exsisting companies should be filed by January 1st 2025. Reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.

“Beneficial ownership” is defined as an individual with significant control over the company or ownership of at least 25%

A “reporting company” is defined as a corporation, LLC, or other entity created by the filing of a document with a Secretary of State or similar office or formed under the law of a foreign country and registered to do business by the filing of a document with a Secretary of State or similar office. (See 31 CFR 1010.380(C)(1)).

However, a corporation, LLC, or other entity will not be considered a reporting company, and therefore not required to file a report if it qualifies for one of the 23 exemptions set forth in the Corporate Transparency Act and the final rule implementing the reporting requirement. (See 31 CFR 1010.380(C)(2)).

Exempt from being considered a “reporting entity” is the following:

1. Securities reporting issuer

2. Governmental authority

3. Bank

4. Credit union

5. Depository institution holding company

6. Money services business

Any money transmitting business registered with FinCEN under 31 U.S.C. 5330, and any money services business registered with FinCEN under 31 CFR 1022.380.

7. Broker or dealer in securities
Any broker or dealer, as those terms are defined in Sec. 3 of the Securities Exchange Act of 1934, that is registered under Sec. 15 of that Act.

8. Securities exchange or clearing agency

9. Other Exchange Act registered entity

10. Investment company or investment adviser
Any entity that is: (A) an investment company as defined in Sec. 3 of the Investment Company Act of 1940, or is an investment adviser as defined in Sec. 202 of the Investment Advisers Act of 1940, and (B) registered with the SEC under the Investment Company Act of 1940 or the Investment Advisers Act of 1940.

11. Venture capital fund adviser
Any investment adviser that: (A) is described in section 203(l) of the Investment Advisers Act of 1940, and (B) has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the SEC.

12. Insurance company
Any insurance company as defined in Sec. 2 of the Investment Company Act of 1940.

13. State-licensed insurance producer
Any entity that: (A) is an insurance producer that is authorized by a State and subject to supervision by the insurance commissioner or a similar official or agency of a State, and (B) has an operating presence at a physical office within the United States.

14. Commodity Exchange Act registered entity

15. Accounting firm
Any public accounting firm registered in accordance with Sec. 102 of the Sarbanes-Oxley Act of 2002.

16. Public utility

17. Financial market utility

18. Pooled investment vehicle

19. Tax-exempt entity

20. Entity assisting a tax-exempt entity

21. Large operating company
Any entity that: (A) employs more than 20 full time employees in the United States, with “full time employee in the United States” having the meaning provided in 26 CFR 54.4980H-1(a) and 54.4980H-3, except that the term “United States” as used in those sections of the CFR have the meaning provided in 31 CFR 1010.100(hhh), (B) has an operating presence at a physical office within the United States, and (C) filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales, as reported as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under Federal income tax principles. For an entity that is part of an affiliated group of corporations within the meaning of 26 USC 1504 that filed a consolidated return, the applicable amount shall be the amount reported on the consolidated return for such group.

22. Subsidiary of certain exempt entities

23. Inactive entity
Any entity that: (A) was in existence on or before January 1, 2020, (B) is not engaged in active business, (C) is not owned by a foreign person, whether directly or indirectly, wholly or partially, (D) has not experienced any change in ownership in the preceding twelve-month period, (E) has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12 month period, and (F) does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.

Conclusion
Determining whether a beneficial ownership information report must be filed involves a two-step process. First, determine if the entity is a corporation, LLC, or other entity created by the filing of a document with a Secretary of State or similar office, or formed under the law of a foreign country and registered to do business by the filing of a document with a Secretary of State or similar office. If so, the second step is to determine if it is one of the 23 types of entities that are exempt from having to file a report. This article has set forth the exemptions that are available under the Corporate Transparency Act and the regulations issued by the Financial Crimes Enforcement Network. Anyone owning, managing, or advising entities should review these exemptions before the January 1, 2024 effective date of the reporting requirement.

For more information see resourse article from Wolters Kluwer and FINCEN.

Related resources:

A webinar on BOI reporting under the CTA that may be accessed here: Beneficial ownership information reporting under the Corporate Transparency Act.