The Corporate Transparency Act became effective on January 1, 2024. It is currently estimated that there are more than two million corporations, limited liability companies, and other similar entities created in the United States each year. Most states in which those entities are filed do not require disclosing information about the owners of the entities, inadvertently permitting ownership concealment and leeway to engage in and facilitate illegal activities such as money laundering, financing terrorism, counterfeiting, securities fraud, and financial fraud.
To prevent individuals with illicit intentions from benefitting from concealed ownership, Congress enacted the Corporate Transparency Act, which contains a beneficial ownership reporting requirement for corporations, limited liability companies, and other similar entities. Under the Act, a Beneficial Ownership Information Report must be submitted by qualifying entities to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Qualifying entities include LLCs, corporations, limited liability partnerships, and other such entities created through filing with a secretary of state office, as well as foreign reporting companies registered to conduct business in the U.S. through filing with a secretary of state office or its equivalent. Reporting companies must submit their beneficial owners’ legal names, their current U.S. addresses, and taxpayer identification numbers specifying the jurisdiction in which the entities were formed or registered. The Act defines a beneficial owner as any individual who either directly or indirectly exercises substantial control over the entity or owns or controls 25% or more of the ownership interests of that entity.
Qualifying entities established prior to January 1, 2024, have until January 1, 2025, to file a Beneficial Ownership Information Report with FinCEN, whereas entities established after January 1, 2024, but before January 1, 2025, will have ninety days from either the actual notice of formation or public announcement to file with FinCEN, whichever comes first. Entities established on or after January 1, 2025, will have thirty days from notification or public announcement of their formation to submit their report to FinCEN. Beneficial Ownership Reports are free of charge, and electronic forms are available on FinCEN’s website. An additional important requirement about submitting a Beneficial Ownership Report is that for all reporting companies created or registered on or after January 1, 2024, information about the company applicant(s) must be reported to FinCEN, in addition to the Beneficial Ownership Information Report. A company applicant is either the person who directly files the document that creates or registers the reporting entity. If more than one person is involved in the filing of the document that forms or registers the reporting entity, then a company applicant must be the person who is primarily responsible for directing or controlling the filing.