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January 26, 2024

Cross-Border Update

Q1, 2024—"The Corporate Transparency Act's Impact on Forming US Entities"

The Corporate Transparency Act (CTA) became effective on January 2, 2024. The purpose of the CTA is to deter money laundering, tax evasion, and other illicit activities by so-called “shell” companies. The CTA will affect not only the process of forming most limited liability companies (LLCs), corporations, and other entities but also reporting with respect to the ownership of existing US-formed entities. 

The CTA generally requires that the ultimate beneficial ownership of US entities be reported to the Financial Crimes Enforcement Network (FinCEN). As a general rule, this beneficial ownership information (BOI) refers not only to owners owning a 25 percent or more beneficial equity interest but also to persons who exercise “substantial control” over a company. BOI includes name, date of birth, and address. 

With respect to the entity itself, the information required to be reported includes the entity’s name, trade name(s) (if any), principal address, jurisdiction of formation, and federal tax identification number.

Various entities are exempt from the reporting requirements, including SEC reporting companies, banks and credit unions, insurance companies, tax exempt entities, and companies with 20 full-time employees and more than $5 million in gross receipts/sales. However, practically speaking, the CTA reporting requirements will apply to most other US-formed entities. In fact, FinCEN anticipates that there will be over 32 million initial filings in 2024 alone.

The CTA applies to most entities formed after January 1, 2024, and for newly formed entities formed during 2024, the information filing must be made within 90 days of the date of formation. For newly formed entities formed after January 1, 2025, the information filing must be made within 90 days of the date of formation. The CTA reporting requirements also apply to most existing entities. All existing nonexempt entities formed before January 1, 2024, are required to do initial filings before the end of 2024. 

In all cases, changes to the reported information must be filed within 30 days of the effective date of the change.

To facilitate compliance with the CTA, Barclay Damon has entered into an agreement with a third-party service bureau that has created a filing platform that can be utilized in inputting formation and entity ownership information and ultimately in filing beneficial ownership reports. We are happy to assist in connecting you to this service provider to ensure compliance with the CTA.

If you have questions regarding the CTA, please contact Jim Canfield or Mike Moore, co-chairs of Barclay Damon’s Corporate Practice Area, at jcanfield@barclaydamon.com and mmoore@barclaydamon.com.
 

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