Preparing for the Corporate Transparency Act

Client Alert

Beginning in January 2024, many small businesses and family investment companies will be required to report ownership and management information to the U.S. Department of the Treasury. The reporting requirements arise under the Corporate Transparency Act, which is included in the Anti-Money Laundering Act of 2020, and are intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.

When the Corporate Transparency Act takes effect, beneficial ownership information (BOI) reports must be filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The BOI reports will identify a company’s beneficial owners. A “beneficial owner” is an individual who either directly or indirectly: (1) exercises “substantial control” over the company, or (2) owns or controls at least 25% of the company’s ownership interests. An individual can exercise “substantial control” over a company in a variety of different ways. FinCEN has stated that if an individual falls into any of the categories below, the individual is exercising substantial control:

  • The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function).
  • The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the company.
  • The individual is an important decision-maker for the company (as determined under FinCEN guidance).
  • The individual has any other form of substantial control over the company as provided by FinCEN.

Does this reporting requirement apply to my company? Companies are required to report to FinCEN only if they meet the definition of a “reporting company” and do not qualify for an exemption. In general, a “reporting company” means a corporation, limited liability company, or other similar entity (which we assume includes limited partnerships) that is (i) created by the filing of a document with a secretary of state or a similar office of a State or Indian Tribe (referred to as a “domestic reporting company”); or (ii) formed under the law of a foreign country and registered to do business in the United States (referred to as a “foreign reporting company”). A domestic entity such as a statutory trust, business trust, or foundation is a reporting company only if it was created by the filing of a document with a secretary of state or similar office.

The reporting rules exempt twenty-three specific types of entities from the reporting requirements. Exempt entities include banks, insurance companies, tax-exempt entities, and large operating companies. To qualify for the large operating company exemption, the company must, among other requirements, employ more than 20 full-time employees and have more than $5,000,000 in annual gross receipts or sales.

When is the BOI report required? Reporting companies created or registered to do business before calendar year 2024 will have until January 1, 2025, to file their initial BOI reports. Reporting companies created or registered in calendar year 2024 will have 90 days after receiving notice of their company’s creation or registration to file their initial BOI reports, and reporting companies created or registered after calendar year 2024 will have 30 days after receiving notice of their company’s creation or registration to file their initial BOI reports. A company may “receive notice” of its creation or registration through a direct communication from the secretary of state or similar office, or because the creation or registration appears on a publicly accessible registry maintained by the secretary of state or similar office.

In addition to BOI, a reporting company will have to report its name, address, the place of its formation or registration, and its taxpayer identification number. A reporting company created or registered in or after calendar year 2024 will also have to report certain information relating to the person(s) that formed or registered the company.

In general, if there is any change to the required information about the company or its beneficial owners in a BOI report that the company filed, the company must file an updated report no later than 30 days after the date of the change.

If a company disregards its BOI reporting obligations, it could face civil and criminal penalties.

Where can you get additional information about BOI reports?

FinCEN maintains a helpful frequently asked questions web page, which can be accessed here.

For assistance relating to the Corporate Transparency Act and its reporting requirements, you may contact Scott B. Johnson or Craig D. Miller.



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved