On January 1, 2021 Congress passed the Corporate Transparency Act. The purpose of this Memorandum is to alert you to the forthcoming requirements.
The Act requires corporations, limited liability companies, partnerships and similar entities registered with any state (including foreign entities which have registered in the United States) to file with the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”), a report disclosing each individual who, directly or indirectly, either (i) exercises “substantial control” over the entity, or (ii) owns 25% or more of the beneficial interests in the entity (any individual satisfying either of these conditions is referred to here as an “Ultimate Beneficial Owner”).
No report will be required, if the entity has more than 20 employees, $5 million in reported revenue on its tax returns and a United States location. Other exemptions apply to nonprofit entities and to entities in certain industries which report to and are regulated by government agencies. The latter would include SEC-registered reporting companies.
The disclosure (likely electronic) will require reporting certain identifiable information for each reporting person including name, address, birth date and individual identifying information such as a driver’s license, passport or other FinCEN acceptable information. To some extent, some of the information required is similar to what financial institutions generally require when opening accounts or providing financing.
The Act is a work in progress since more definitive guidance will only be available when the Department of the Treasury issues final definitions and regulations (which it is required to do within one year of the passage of the Act – i.e., by December 31, 2021). Once the regulations are effective, existing entities will then have two years to comply or face penalties for failure to comply. Entities formed after the effective date of the regulations must file this information when the entity is formed or registered. Reports will need to be updated within 1 year of a change in beneficial ownership.
Some Practical Takeaways
We plan to update this memorandum when implementing regulations are adopted.
If you have any questions, please contact our office.