Effective January 1, 2024, your business may be required to submit information to the Financial Crimes Enforcement Network (“FinCEN”) about your owners pursuant to the Corporate Transparency Act (“CTA”).

The CTA was enacted on January 1, 2021 as an expansion of anti-money laundering laws and is intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity. Under the CTA, most legal entities incorporated, organized, or registered to do business in any state will be required to disclose to FinCEN information relating to the entity’s owners, officers, and controlling persons. Broadly speaking, the CTA and the rule implementing the CTA require any entity that is determined to be a “reporting company” under the law to file reports with the federal government regarding their “beneficial owners.”

The following are key highlights of the Rule:

WHO IS REQUIRED TO FILE A REPORT?

Subject to a few exceptions set forth in the Rule, most companies incorporated, organized or registered to do business in the United States are required to file reports. Specifically, reports must be filed by domestic and foreign “reporting companies,” which are defined as follows:

• Domestic reporting company – any entity that is a corporation, a limited liability company, or otherwise created by the filing of a document with a secretary of state or similar office.

• Foreign reporting company – any entity formed under the law of a foreign country and registered to do business in any U.S. state by the filing of a document with a secretary of state or similar office.

WHO IS A BENEFICIAL OWNER?

The CTA requires reporting companies to provide identifying information for the beneficial owners of the reporting company. The CTA states a beneficial owner is an individual who, directly or indirectly, either (i) exercises “substantial control” over a reporting company or (ii) owns or controls at least 25 percent of the ownership interests of a reporting company. An individual exercises “substantial control” if they satisfy any of the following factors:

1. They serve as a senior officer of the company;
2. They have authority over the senior officers or majority of the board of a company;
3. They have substantial influence over the company’s important decisions; or
4. They have any other type of substantial control over the company.

Although the criteria for being classified as a beneficial owner may appear to relate to individuals that are directly related to the company, individuals indirectly related to the company will also be considered beneficial owners if they satisfy any of the requirements for substantial control. Specifically, individuals may indirectly exercise substantial control over a reporting company by controlling one or more intermediary entities that in turn exercise substantial control over the reporting entity. 

The following individuals cannot be considered beneficial owners of a reporting company:

1. Minor children (however, the reporting company must report information regarding the minor child’s parent or legal guardian)
2. An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual (in which case that individual would be the beneficial owner)
3. An employee of the reporting company, acting solely as an employee, whose substantial control over or economic benefits from the entity are derived solely from the employment status (provided the person is not a senior officer of the entity)
4. An individual whose only interest in a reporting company is a future interest through a right of inheritance, and
5. A creditor of the reporting company (unless they exercise substantial control or have a 25-percent ownership interest in the reporting company).

WHAT INFORMATION MUST BE REPORTED?

Reports include information about (1) the reporting company, (2) the reporting company’s beneficial owners, and (3) “company applicants” who made the filings to create the entity.

Information about the reporting company includes:

• Full legal name
• Any trade name or “doing business as” (d/b/a) name
• Current address
• Jurisdiction of formation
• Federal taxpayer ID number

Information about individual beneficial owners and company applicants includes:

• Full legal name
• Date of birth
• Current address
• Unique identifying number and issuing jurisdiction (e.g., U.S. passport or driver license)
• Image of document with identifying number

WHEN MUST REPORTS BE SUBMITTED?

The reporting regime goes into effect on January 1, 2024. The due date for the initial report depends on when the entity was created:

• If the company is created between January 1, 2024 and December 31, 2024, the initial report is due within 90 calendar days of the date the entity is created.
• If the company is or was formed before January 1, 2024, the initial report is due no later than January 1, 2025.

HOW ARE REPORTS FILED?

FinCEN is currently designing and building a new IT system called the Beneficial Ownership Secure System to collect and store CTA reports. This system is not yet available, and reports will not be accepted prior to January 1, 2024.

WHAT CAN YOU DO NOW TO BE PREPARED?

Although reports will not be accepted prior to January 1, 2024, entities should begin collecting information for the reports as soon as possible. Please contact our Corporate Practice Group and the attorneys listed below for more information and to discuss your reporting obligations under the CTA.

Brienne T. Marco
Member
Vice Chair, Corporate Department
Harrisburg, PA 304.380.6608
Charleston, WV 304.720.4060

and

Joseph C. Unger
Senior Attorney
Charleston, WV 304.340.3850