February 08, 2021
The Corporate Transparency Act ("CTA"), recently signed into law on January 1, 2021, will impose new federal reporting requirements on most businesses. Unless otherwise exempt, all new and existing business entities will be required to report information about their beneficial owners to the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN). The stated purpose behind this new legislation is to better help FinCEN and other government agencies combat money laundering, terrorism, and other criminal activity conducted via anonymous shell companies. The CTA's reporting requirements will not take effect until regulations are issued by the Treasury Department, which must occur by December 31, 2021.
Once fully implemented, this new reporting requirement will apply to all new and existing corporations, LLCs, partnerships, and similar business entities formed under the laws of any U.S. state or territory (a "reporting entity"). A reporting entity must provide to FinCEN the following information regarding each beneficial owner and applicant of the business:
(1) full legal name;
(2) date of birth;
(3) current residential or business street address;
(4) a unique identifying number, such as a passport or state driver's license number, or FinCEN number, once assigned.
Under the CTA, a "beneficial owner" is defined as any individual who, directly or indirectly, exercises substantial control over the entity or who owns or controls more than 25% of the entity's equity. An "applicant" is any individual who files the formation documents for the entity, even if they are not a beneficial owner (e.g., attorney, accountant, etc.).
There are several types of entities that will be exempt from the CTA's reporting requirements, such as nonprofits; governmental entities; publicly traded companies; banks and other financial institutions; insurance companies; registered public accounting firms; registered investment advisers; public utilities; certain pooled investment vehicles; and entities owned or controlled by one or more such exempt entities. Dormant entities and active businesses with (i) more than 20 full-time U.S. employees, (ii) $5 million in gross receipts, and (iii) a physical operating present within the United States will also be exempt from the reporting requirements.
Entities formed before the effective date of the CTA will have two (2) years to submit a FinCEN report. Entities formed after the effective date of the CTA shall submit a FinCEN report at the time of formation. If there are later changes to the beneficial ownership information for the entity (such as a change in ownership or change in address of an owner), the company will be required to submit an updated FinCEN report no later than one year after the date of such change. Failure to submit a FinCEN report or to willfully provide false information may incur a $500/day fine for each day the entity is in violation (up to $10,000 total) or imprisonment for up to 2 years. Reporting entities will have 90 days to correct any inaccurate information previously submitted to FinCEN, provided that such reported inaccuracy was unintentional.
Once fully implemented, the CTA is certain to create a substantial and ongoing compliance burden for all new and existing entities. While we await the final publication of the CTA's implementing regulations, existing non-exempt entities (and individuals considering forming a new entity in 2021) should earnestly begin gathering all the required reporting information on its current (or anticipated) beneficial owners.
 Section 6401 et. seq., H.R. 6395, as part of the National Defense Authorization Act for Fiscal Year 2021 (the "Act").
 Section 6402.
 Section 6403(b)(5).
 Reporting entities also include any foreign entities registered to do business within the United States.
 Section 6403(b)(2)(A). Individuals and entities may request a unique FinCEN number after the initial information filing for use in any subsequent filings. Section 6403(b)(3).
 The CTA left "substantial control" undefined, but the subsequent regulations are sure to address this.
 31 U.S.C 5336(a)(11)(B), as amended by Section 6402(a) of the Act.
 Section 6403(b)(1)(B).
 Section 6403(b)(1)(C).
 Section 6403(b)(1)(D).
 Section 6403(h).