By Jennifer A. Golub, Esq.

As a result of the Corporate Transparency Act enacted by Congress in 2021, beginning January 1, 2024, many entities will be required to disclose certain personal information belonging to their beneficial owners. The Act is intended to reduce the use of shell companies to launder money, but its broad application will result in unprecedented reporting obligations for most domestic corporate entities. 

Entities that are required to report: Any corporation, limited liability company, or other entity that is created by the filing of a document with a secretary of state or similar office is required to disclose certain information about its beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCen). Twentythree types of entities are exempt from reporting, such as tax-exempt entities and large operating companies.

Identification of a beneficial owner: A beneficial owner includes each individual who (i) exercises substantial control over the company or (ii) owns or controls at least 25% of the company. Individuals are considered to exercise “substantial control” over a company if they serve as a senior officer or can direct or have substantial influence over important decisions made by the entity. FinCen has enacted regulations that discuss beneficial ownership in greater detail.

Information that is reported: The following must be reported for each beneficial owner: (i) legal name; (ii) birthdate; (iii) address; and (iv) an identifying number from a driver’s license, passport, or other approved document, as well as an image of such document.

Timing of reports: For reporting companies created before January 1, 2024, the initial report is due by January 1, 2025. For reporting companies created after January 1, 2024, the initial report is due within 30 days of creation of the entity.

Companies must also report any change in reported information within 30 days of such change. Inaccurate reported information must be corrected within 30 days after the company becomes aware of, or has reason to know of, the inaccuracy.

Non-compliance: Failure to comply with the Act or providing false information may result in both civil and criminal penalties.

The Corporate Transparency Act represents a fundamental change in the disclosure of corporate ownership and entities both existing and to be created in the future are encouraged to ensure compliance with its reporting obligations.

For more information, contact Jennifer A. Golub at jgolub@spsk.com or at (973) 539-5203.