This memorandum will be updated periodically as developments warrant.
In 2021 Congress passed the Corporate Transparency Act (“CTA”) which imposes a new federal filing regime effective January 1, 2024. The Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has issued final rules to implement the Act. The purpose of this Memorandum is to alert you to the new reporting requirements.
The CTA requires corporations, limited liability companies, partnerships and similar entities (including certain trusts) registered with any state (including foreign entities which are registered in the United States) to file with 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. Under the final rule, a beneficial owner of a reporting company is “any individual who, directly or indirectly, exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.” 
No report is required, if the entity has more than 20 employees, $5 million in reported revenue on its most recent tax return 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 includes SEC-registered reporting companies.
The disclosure requires reporting certain identifiable information for both the entity and each reporting person including name, address, birth date and providing a copy of individual identifying information such as a driver’s license, passport or other FinCEN acceptable information. Reporting a company’s beneficial ownership/control information to FinCEN, will be accomplished electronically through a secure filing system available via FinCEN’s website. https://boiefiling.fincen.gov/fileboir
To some extent, some of the information required is similar to what financial institutions generally require when opening accounts or providing financing.
Except for companies existing prior to January 1, 2024, a report is required to be filed by the “Company Applicant” within 30 days of the formation of the entity. We anticipate that corporate filing services will initiate procedures to file the FinCEN notices and state formation filings simultaneously. However, for existing entities, the entity, its counsel or accountant will likely have to complete the FinCEN filing by December 31, 2024.
As of the January 1, 2024 effectiveness of the final rules, reporting companies will be required to comply with the following timeframes:
• One Year for Existing Companies: Domestic reporting companies created, or foreign reporting companies registered to do business in the United States before January 1, 2024, must file their initial report with FinCEN no later than December 31, 2024.
• 30/90 Calendar Days for New Companies : Domestic reporting companies created, or foreign reporting companies registered to do business in the United States, on or after January 1, 2024, must file their initial report with FinCEN within 90 calendar days of the date when they are effectively created or registered. (30 days for entities established after January 1, 2025.)
• 30 Calendar Days for Companies no longer exempt: Any entity that no longer meets all of the criteria to remain an exempt entity must file a report within 30 calendar days of the date when it no longer meets the criteria for an exemption.
• 30 Calendar Days for Updates: Reporting companies will have 30 calendar days to file an updated report if there is a change in the information previously reported to FinCEN (e.g. ownership changes).
• 30 Calendar Days for Error Corrections: If a reporting company filed a report containing information that was inaccurate at the time of filing, and such information remains inaccurate, the reporting company must file a corrected report within 30 calendar days of the date it becomes aware, or has reason to know, that the information is inaccurate.
• Special rules apply to Section 501 ( c) entities depending on the status of their application for exemption.
• Failure to comply with the CTA can result in civil or criminal penalties (or both). For instance, the failure to comply with the statutorily-mandated reporting timeframes regarding the filing of initial or updated reports could result in a $500-per-day penalty (up to $10,000) and up to two years of imprisonment.
Some Practical Takeaways
1. LLC Operating Agreements, Stockholder Agreements and Trusts should include a provision requiring the holders (or any transferee of the holder) to provide the necessary information and should include penalties for failure to timely provide the information.
2. Confidentiality provisions regarding ownership interests must be tailored according to the FinCEN reporting requirements, (FinCEN is generally not allowed to disclose the information provided to it).
3. It is likely that financial institutions providing financing and investment may require copies of the FinCEN filings as part of their due diligence.
4. To be proactive, entity managers should try to gather the necessary information and identification from managers and holders as soon as feasible and designate an individual within the organization to coordinate FinCEN filings and amendments required for the entity.
5. In entities with multiple LLCs and/or corporations, as owners, the filer will have to determine the actual the individual person(s) who are the beneficial owner(s) who meet the FinCEN definition for each entity.
6. A FinCEN Identifier will benefit entities and individuals that will likely complete multiple filings. A FinCEN Identifier is a unique number that FinCEN will issue upon request after receiving required information. Although there is no requirement to obtain a FinCEN Identifier, doing so can simplify the reporting process and allows entities or individuals to quickly reference identifying information previously provided to FinCEN.
7. In late 2023, New York enacted similar legislation which applies solely to limited liability companies formed or qualified to do business in New York. To date, no implementing regulations have been proposed for the New York legislation.
A general caveat
These rules are new and there is no extensive experience yet as to how to determine exactly what FinCEN expects.FinCEN has issued FAQs available at https://www.fincen.gov/boi-faqs and a Small Entity Compliance Guide available at https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf If you have any questions, please contact our office.
KRIEGER & PRAGER, LLP
39 Broadway, Suite 920
New York, NY 10006
Tel: (212) 363-2900
Fax: (212) 363-2999
Given the January 1, 2024 effectiveness of the Corporate Transparency Act, clients are advised that unless Krieger & Prager, LLP is specifically retained to assist with CTA filings, our firm takes no responsibility as to compliance with the provisions of the CTA.
 FinCEN notes in the Final Rule that the reference to “substantial control” is meant to cover varying and flexible governance structures, such as series LLC’s and decentralized autonomous organizations, for which different indicators of control may be relevant. FinCEN has stated that in addition to ownership criteria an individual exercises substantial control over a reporting company if the individual meets any of 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. The individual is an important decision-maker.
4. The individual has any other form of substantial control over the reporting company.
 The Final Rule clarifies that a “company applicant” (i) for a domestic reporting company is the individual who directly files the document that created the entity, (ii) for a foreign reporting company is the individual who directly files the document that the first registers the entity in the United States, and (iii) for both domestic and foreign reporting companies, is the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing.