The Corporate Transparency Act (CTA) was enacted in 2021 and generally requires all entities registered with a Secretary of State or equivalent tribal entity, to report “beneficial owners” to the Financial Crimes Enforcement Network (FINCEN), a division of the U.S. Department of Treasury, in 2024.
Beneficial owners are generally those individuals or entities that own more than 25% of a company or that exercise substantial control. Substantial control is broadly defined to include any individual or entity that makes important decisions on behalf of the company.
After releasing regulations surrounding the CTA, FINCEN has begun to release additional registration guidance, including proposed registration inputs and FAQs, available at https://www.fincen.gov/boi-faqs.
Based on that guidance, here is the reporting landscape that businesses can expect to encounter when registration opens Jan.1, 2024:
· Each individual or business that must be identified as a “beneficial owner” will be able to obtain a FINCEN identifier (FINCEN ID) by establishing an account with Login.gov and providing the following information: Name, DOB, physical address and government-issued ID (driver’s license/passport/tribal ID).
· A registering business can report the FINCEN ID for each “beneficial owner” or the same information required for the FINCEN ID. Given the sensitive nature of information contained in the FINCEN ID and the requirement to update it within 30 days, it will generally be more efficient for individuals and businesses to obtain a FINCEN ID. We are expecting that the FINCEN ID will be included on cap tables going forward to facilitate easy reporting.
· To register, each business will need to provide, in addition to its beneficial owners: the relevant tax id for the entity, its registering jurisdiction, the legal name of the business as well as any applicable alternate names (i.e., DBA or trade name), and a current U.S. street address. A P.O. box is not permitted. Currently, it does not appear that the company will have to identify each jurisdiction in which it is registered.
· For entities created after Jan. 1, 2024, either: 1.) Information about the “company applicant” must be provided or 2.) The FINCEN ID of the company applicant. The “company applicants” are the two persons that registered or created the entity, and the individual who is primarily responsible for directing or controlling the filing of the relevant documents of the company.
· Entities formed after Jan. 1, 2024, will have 90 days to register with FINCEN rather than the originally-proposed 30 days. This extension will be helpful in the context of the deal cycle, as new entities are often formed before the owners and control parties to a transaction are established.
· All existing entities will need to complete registration in 2024, or to be strictly compliant, within 30 days of any change in beneficial owner in 2024.
The CTA does exempt “large” entities (those with at least 20 employees and greater than $5 million in gross receipts), non-profits and other regulated or registered entities from registration. Those exemptions will generally be unhelpful for most entities. FINCEN has estimated that some 24 million entities will need to register in 2024.
To discuss this or related topics, contact Ross P. Keogh by calling (406) 317-7220 or send an email to firstname.lastname@example.org or contact Tyler G. MacKay by calling (801) 532-1234 or send an email to email@example.com.