U.S based CEOs and those coming from abroad should be aware of new U.S. legislation (31 U.S. Code § 5336 – Beneficial Ownership Information Reporting Requirements) that requires companies formed in or registered to business in the United States to report the name and information of their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). Although there are some exceptions, January 1st, 2022, is the deadline for the Secretary of the Treasury to promulgate regulations implementing the Corporate Transparency Act, and the new law is anticipated to be fully implemented by 2023. All business owners should be aware of its requirements.
The new regulation is part of the Corporate Transparency Act (“CTA”) and was passed by Congress to prevent the use of anonymous shell corporations that people were using to evade taxes or for criminal purposes. The CTA will require business entities referred to as Reporting Companies to give FinCEN certain identifying information about their owners and those who register or create those entities with the state. This is especially important for third party filers such as law firms to know. In particular, the CTA applies to business entities that are “created through the filing of a document with the secretary of state or a similar office under the law of a state or Indian tribe or formed under the law of a foreign country and registered to do business in the United States by the filing of such a document.” This means it will apply to most business entities including corporations, LLCs, and LLPs.
For those considered Reporting Companies, FinCEN will need to receive certain identifying information from “Beneficial Owners” and “Applicants.” A Beneficial Owner is any individual that exercises substantial control over the entity or owns at least 25% of it. An Applicant is the person that files the application which forms the entity or registers it to do business within the United States. Each Beneficial Owner and Applicant will need to provide the following to FinCEN:
1. Their full name;
2. Their date of birth;
3. A current residential or business address; and
4. An identifying number from a state-issued identification such as a passport or driver’s license.
Although companies can anticipate the CTA to be fully implemented by 2023, it affects all Reporting Companies regardless of their date of formation. Those formed before the effective date will have up to two years to report the information to FinCEN; while those formed on or after the effective will have to provide the information at the time of formation or registration. Read more at https://www.nexsenpruet.com/publication-the-new-corporate-transparency-act-nc#_ftn15 and https://www.americanbar.org/groups/business_law/publications/blt/2021/05/corporate-transparency-act/.
However, some entities are explicitly excluded from the definition of “Reporting Company,” including nonprofit organizations, business regulated by other government agencies like the SEC, and companies that employ more than 20 people, report revenues of more than $5 million in taxes, and have a physical presence in the United States.
To ensure that you and your businesses stay up to date on all regulatory requirements, be sure to consult your legal counsel. At Gonzalo Law, we regularly form corporations and LLCs for clients in the U.S. and those from abroad. We stay current on the latest business law developments and are glad to be of service to you. Find out more at www.gonzalolaw.com.