Corporate Transparency Act Final Rules to Take Effect Next Year

2024-09-24 10:40:54

Effective January 1, 2024, most new and existing corporate entities in the United States will be required to file beneficial ownership reports with the federal government. These comprehensive requirements are part of the Corporate Transparency Act (CTA), enacted on January 1, 2021. On September 29, 2022, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued final rules to implement the CTA's reporting requirements for beneficial ownership information ("Rules"). The Rules will take effect on January 1, 2024. Any reporting company that exists or is registered before January 1, 2024, must file its initial report with FinCEN by January 1, 2025. Any company created or registered on or after January 1, 2024, must file its initial report within 30 days of creation or registration.

Under the Rules, many companies are required to report information about their beneficial owners. Such companies include (i) domestic corporations, limited liability companies, or any other entities created by filing with a secretary of state or similar state or tribal office, and (ii) non-U.S. corporations, limited liability companies, and other entities registered to do business in the U.S., with certain exemptions. A beneficial owner, as defined by the Rules, is "any individual who, directly or indirectly, exercises substantial control over such reporting company or owns or controls at least 25% of the ownership interests of such reporting company."

Violations of the CTA, including failure to report beneficial owners or reporting false or fraudulent information, may result in civil or criminal penalties. Civil penalties can reach up to $500perday\ast \ast foreachdaytheviolationcontinues\mathrm{.}Criminalpenaltiesincludefinesofupto\ast \ast$500perday∗∗foreachdaytheviolationcontinues.Criminalpenaltiesincludefinesofupto∗∗10,000 and/or imprisonment for up to two years.

FinCEN is currently building a new computer system called the Beneficial Ownership Secure System (BOSS) to collect and store CTA reports. The system is not yet available but is expected to be operational by January 1, 2024.