Corporate Transparency Act Seismic Shift

Corporate Transparency Act – Summary

The Corporate Transparency Act requires U.S. companies to report their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  FinCEN would host the new central business owner registry, and it would be considered confidential, non-public information.  For anyone forming a new corporation or limited liability company, they must file applicant and beneficial ownership information with FinCEN and annually file a report verifying or updating this information.  Existing corporations and limited liability companies will have two years from the law’s effective date to file beneficial ownership information with FinCEN.

Applicants and Beneficial Owners

Under the CTA, an applicant is any natural person who files an application to form a corporation or limited liability company and a beneficial owner is an individual who (1) exercises substantial control over a corporation or limited liability company, (2) owns 25% or more of the interest in a corporation or limited liability company, or (3) receives substantial economic benefits from the assets of a corporation or limited liability company.

U.S. Individuals

The information being reported to FinCen must include the applicant’s and the beneficial owner(s)’s full legal name, date of birth, current residential or business street address, and a non-expired U.S. issued passport, personal identification card, or driver’s license.

Non-U.S. Individuals

For any beneficial owner who does not possesses one of these documents, the applicant must provide the full legal name, current residential or business street address, a unique identifying number from a non-expired passport issued by a foreign government, and a legible and credible copy of the pages of a non-expired passport issued by the government of a foreign country bearing a photograph, date of birth, and unique identifying information.  In addition, the applicant must include a written certification by a person residing in the state in which the entity is being formed that the applicant, corporation, or limited liability company has 1) obtained and verified this information, 2) will provide it to FinCen upon request, and 3) will maintain this information for 5 years after the corporation or limited liability company terminates under the laws of the state in which it is formed.

Exemptions

Most businesses will be required to comply with the new rules, but businesses with more than 20 employees, $5M in annual revenues, and a physical U.S. presence are exempt.  In addition, non-profits, businesses issuing securities who are required to register with the SEC, and a number of financial related businesses are exempt.

Any applicant forming an entity exempt under the rules, must file a written certification with FinCEN identifying the specific exemption provision, a statement the entity meets the exemption requirements, and provide the applicant’s (or prospective officer, director, or similar agent) information as required under the rules for non-exempt businesses.

FinCen ID Numbers

An individual may choose to register with FinCen by providing the information required under the Corporate Transparency Act and request a FinCin ID number.  When reporting to FinCen under the rules, submission of a FinCen ID number in lieu of the required information for any applicant or beneficial owner is permissible.

Corporate Transparency Act Penalties

Those who provide false or fraudulent beneficial ownership information or willfully fail to provide complete or updated beneficial ownership information face fines of up to $10,000 and up to three years imprisonment.