When Do I Need To File For The Corporate Transparency Act?

If you are asking yourself, "When do I need to file for the Corporate Transparency Act?" there is probably a lot about the CTA you need to know.

When Do Reporting Companies Need to File?

The CTA, as implemented through the Reporting Rule, requires any domestic reporting company created on or after January 1, 2024, to file a report within 30 calendar days after the earlier of (a) the date on which it receives actual notice that its creation has become effective or (b) the date on which a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the domestic reporting company has been created.

Similarly, any entity that becomes a foreign reporting company on or after January 1, 2024, must file a report within 30 calendar days after the earlier of (a) the date on which it receives actual notice that it has been registered to do business or (b) the date on which a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the foreign reporting company has been registered to do business.

In contrast, both domestic reporting companies created before January 1, 2024, and foreign reporting companies that became foreign reporting companies before January 1, 2024, must file an initial report no later than January 1, 2025. As a result, if you manage a reporting company that exists today, you have until January 1, 2025 to file your first report.

What is the Corporate Transparency Act?

Congress adopted the Corporate Transparency Act (CTA) as part of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L No. 116-283. The CTA includes some of the most significant changes to the Bank Secrecy Act (BSA) and U.S. anti-money laundering (AML) laws in recent years.

The CTA will require companies formed or registered to do business in the U.S. to file a beneficial ownership report with FinCEN - the Financial Crimes Enforcement Network of the U.S. Treasury Department. FinCEN will use these beneficial ownership reports to assemble a huge database of beneficial ownership information. FinCEN will fight money laundering by sharing access to its database with other U.S. law enforcement agencies. Except for law enforcement access, the FinCEN database will not be publicly available. FinCEN plans to make the database accessible to U.S. law enforcement agencies, U.S. financial institutions and some non-U.S. law enforcement agencies pursuant to proposed access regulations.

FinCEN issued an advance notice of proposed rulemaking on April 5, 2021 (the "Reporting ANPRM"). In the Reporting ANPRM, FinCEN asked for comments from the public. FinCEN later issued a notice of proposed rulemaking (or "NPRM") on December 8, 2021. In the NPRM, FinCEN provided an initial draft of proposed regulations and a detailed discussion of its considerations (the "Reporting NPRM"). Because the Reporting NPRM contains a discussion of FinCEN's thinking about the issues, the Reporting NPRM sheds some light on the rationales that motivated FinCEN's drafting.

FinCEN adopted a final regulation to implement the beneficial ownership reporting provisions of the CTA on September 30, 2022 (the "Reporting Rule") that will take effect on January 1, 2024. The CTA, as implemented by FinCEN through the Reporting Rule, establishes a series of obligations for companies formed or registered to do business in the U.S.

What Does My Beneficial Ownership Report Need to Include?

Each reporting company that is not exempt must provide five key pieces of information in its initial beneficial ownership report for each of its "beneficial owners." Specifically, the reporting company must provide for each beneficial owner:

(A) full legal name,

(B) date of birth,

(D) a unique identifying number (which may be a non-expired U.S. passport, a non-expired identification document, such as a driver's license, issued by a state, local government or Indian tribe, or a non-expired passport issued by a foreign government iv the individual does not possess any of the other document types listed), and

(E) an image file of the document that provides the unique identifying number.

In addition, the initial beneficial ownership report must disclose:

(1) the reporting company's full legal name,

(2) any trade name or "doing business as" name,

(3) a complete current address,

(4) the state or jurisdictions of the reporting company's formation, and

(5) the reporting company's taxpayer identification number (TIN) (including an Employer Identification Number (EIN) or, where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

When do I have to report the identity of the "company applicant?"

The preliminary version of the regulation that appeared in the NPRM would have required all reporting companies to identify their "company applicant." The idea was that the "company applicant" would be the individual who signed the articles of organization or articles of incorporation that formed the company. In response to comments, however, FinCEN changed its mind.

As a result, in the Final Rule, FinCEN provided that only reporting companies formed (or registered to do business in the U.S.) after January 1, 2024, would have to identify their company applicant. For those reporting companies, the initial beneficial ownership report must also include these same five pieces of information for the reporting company's "company applicant."

The Reporting Rule defines "company applicant" as (a) with respect to a domestic reporting company, "the individual who directly files the document that creates the domestic reporting company," and (b) with respect to a foreign reporting company, the individual who directly files the document that first registers the foreign reporting company."

If there is more than one individual responsible for the filing of the document that forms the domestic reporting company (or that registers the foreign reporting company to do business in the U.S.), the "company applicant" is the individual "who is primarily responsible."

When Do I Need to Amend or Update my Beneficial Ownership Report?

After a reporting company files its first beneficial ownership report, the company must amend its report within 30 calendar days after there is any change to the information required in that report.

The 30 day amendment rule includes several key provisions that will require close attention.

* Must file notice of change in exempt status. If a reporting company files an initial report but subsequently meets the criteria for an exemption under 31 CFR 1010.380(c)(2), "this change will be deemed a change with respect to information previously submitted to FinCEN and the entity shall file an updated report." 31 CFR 1010.380(a)(2)(ii).

* Must file notice of change in exclusion status from inheritance. If an individual that was excluded from disclosure in the reporting company's prior beneficial ownership report because the individual's interest was solely "by virtue of property interests or other rights subject to transfer upon death" a reportable change takes place when the estate of the deceased beneficial owner is settled. The Final Rule specifies that the key date is "when the estate of the deceased beneficial owner is settled, either through the operation of the intestacy laws of a jurisdiction within the United States or through a testamentary deposition." 31 CFR 1010.380(a)(2)(iii). Such a circumstance would obligate the reporting company to amend its report to identify the previously excluded individual. In any such updated report, the reporting company also must, if applicable, identify any new beneficial owners.

* Must file notice of change in exclusion status from change in minority. If an individual was excluded from disclosure in the reporting company's prior beneficial ownership report because the individual was a minor, "a change with respect to required information will be deemed to occur when the minor child attains the age of majority." 31 CFR 1010.380(a)(2)(iv). Importantly, reporting companies that exclude a minor child should note the child's birthday in order to be prepared to file an amendment when the child reaches the age of majority.

* Must file notice of change in information shown on document image. A change in required information is deemed to occur "when the name, date of birth, address or unique identifying number" changes on the image of the document provided by the reporting company. 31 CFR 1010.380(a)(2)(v).

Importantly, a change in the imaged document (such as a change in the individual's picture or the document's expiration date) that does not alter any of the designated items of information and does not trigger a duty to amend a prior report. In its discussion of comments considered in its adoption of the Reporting Rule, FinCEN noted that "a change in the details of a document's image that do not relate to a change in information to be reported . . . on the identification document will not trigger a requirement to update the image." Reporting Rule, 87 Fed. Reg. 59498, 58597 (emphasis added).

Conclusion

January 1, 2024 may seem like a distant date but it is fast approaching. Reporting companies and their attorneys should get started now on a process to collect applicable documents, identify beneficial owners, and find a software platform where they can collect and store the sensitive personal information that will be required in their reports. The CTA Compliance Hub™ system that the FinCEN Report Company offers allows individuals to keep their personal data safe and secure, while also helping individuals to collaborate with reporting companies who need their information for CTA reporting.