Effective January 1, 2024, the Corporate Transparency Act (“CTA”) requires most businesses, including healthcare businesses, to report certain information regarding beneficial owners and company applicants. Willful failure to report or update beneficial ownership information may result in the imposition of penalties.
CTA in a Nutshell
The CTA and its implementing regulations seek to prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities. To prevent the use of shell and front companies to obfuscate the identities of illicit actors, the implementing regulations require reporting companies to report certain information on beneficial owners (“BOI”) and, for companies formed after January 1, 2024, company applicants. Unless an exception applies, the reporting requirement applies to domestic and foreign entities.
This information is reported to the Financial Crimes Enforcement Network (FinCEn) of the U.S. Department of Treasury.
FinCen recently clarified that the CTA requirement to provide BOI is separate and distinct from the requirement for businesses to report BOI to financial institutions.
Beneficial Owner And Company Applicant
A “beneficial owner” is defined as someone who: (a) exercises substantial control over a reporting company; or (b) owns or controls at least 25 percent of the ownership interests of a reporting company. A “reporting company” is a domestic or foreign entity required to report the beneficial ownership information.
Reporting companies are required to identify all individuals who exercise substantial control over the company. There is no limit to the number of individuals who can be reported for exercising substantial control.
An individual who exercises “substantial control” over a reporting company is defined as someone who meets any of the four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) an important decision-maker; or (4) the individual who has any other form of substantial control over the reporting company.
Additionally, reporting companies are required to identify all individuals who “own or control at least 25 percent of the ownership interests” of the company. Any of the following may be an ownership interest: equity, stock, or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership.
Furthermore, reporting companies formed on or after January 1, 2024, would need to provide information on the company applicant. A “company applicant” is defined the individual who files the document that creates the entity in the United States, or, in the case of a foreign reporting company, an individual who files the document that first registers the entity. The regulations additionally specify that anyone who directs or controls the filing of an entity creation or registration document by another would also be a company applicant and would need to be reported to FinCen.
The beneficial owner information reported to FinCen is not publicly available. In certain circumstances, FinCen is authorized to share BOI with government agencies, financial institutions, and financial regulators.
Reporting Timeline
The reporting timeline depend on when the reporting company was created or registered; and whether the report is an initial report, an updated report providing new information, or a report correcting erroneous information in a previously filed report. In sum:
- A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial owner report (“BOI”) report.
- A reporting company created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective.
- A reporting company created or registered on or after January 1, 2025, will have 30 calendar days to file after receiving actual or public notice that its creation or registration is effective.
Reporting Requirements
The following information needs to be reported for each beneficial owner and company applicant:
- the individual’s full legal name;
- date of birth;
- current residential or business street address; and
- a unique identifying number from an acceptable identification document (e.g., a passport)—or the individual’s FinCEN identifier.
Twenty-three specific types of entities are exempt from the reporting requirement.
If there is any change to the required information about a company or its beneficial owners in a BOI, an updated report must be filed no later than 30 days after the date of the change.
If you have questions about the new CTA reporting requirements please contact our office.