Congress passed the Corporate Transparency Act (the “Act”) with enough support in the Senate to overturn a potential veto by the President. This new law requires companies to report beneficial owners to the Financial Crimes Enforcement Network, known as FinCEN. The goal is to simplify enforcement of anti-money laundering schemes.

Who is Impacted?

Small and emerging businesses bear the largest burden of these additional reporting requirements. A “reporting company” under the Act is any limited liability company, corporation, or similar entity created by filing a document with a US state or Indian Tribe, or a foreign entity registered to do business in the United States. However, there are a number of exceptions including:

  • Companies highly regulated by the US government (e.g. banks, publicly traded companies)
  • Companies with more than 20 employees, $5M in sales reported to the IRS, and a physical location in the US
  • An company owned by another entity

Additionally, companies may need to report information on new investors, such as an angel investor who acquires either 25% or more of the company, or is given substantial control.

Beneficial Owners and Applicants

Companies must file information on a beneficial owner or an applicant. An “applicant” is the person who files the application to form the entity. A “beneficial owner” is defined broadly encompassing people that (i) exercise substantial control over the entity, or (ii) own or control 25% or more of the ownership interests in a company. Additional information and guidance on the “substantial control” prong is anticipated.

Information to be Reported

The following information about beneficial owners and applicants must be reported to FinCEN: (i) name, (ii) date of birth, (iii) address, and (iv) unique identifying number from an acceptable ID, including a state driver’s license and US passport. This information must be reported at formation for companies formed after the Act becomes law, or within 2 years for companies formed before the Act becomes law.

This post is provided for general information purposes and is not legal advice.  As always, if you have any questions about this post or how it might impact your business, contact one of our attorneys.