CLIENT ALERT: Businesses should be aware of the impending commencement of reporting requirements under the federal Corporate Transparency Act (the “Act”) enacted in 2021. Under the Act, and as stated by the U.S. Department of the Treasury, the reporting obligations it imposes on companies regarding their beneficial owners will aid “efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.”
In general, what is being reported, and to whom?
Companies covered under the Act must report certain information regarding their “beneficial owners” in reports filed with the U.S. Treasury Department’s Financial Crimes Enforcement Network by January 1, 2025. The beneficial owner information reported is aimed at identifying and preventing money launderers, fraudulent transactions, and financiers of illicit and terrorist activity hidden among the underlying owners of U.S. entities.
Will my company need to report?
The Act covers all entity types, including corporations, limited liability companies and limited partnerships. More specifically, companies incorporated or formed in any U.S. state must report, unless they fit an exemption. Foreign companies registered to do business in the U.S. also must report.
Is an exemption available for my company?
Final rules exempt some twenty-three types of companies. These include publicly traded companies, tax-exempt entities and other nonprofit organizations, banks and credit unions, government authorities, investment companies and investment advisers, insurance companies, and certain large operating companies (having more than 20 U.S. employees, having filed tax returns in the most recent year with more than $5 million in gross receipts, and having physical offices within the U.S.). A complete list of these exempt entities can be found under the definition of “Reporting Company” in the Act at https://www.fincen.gov/sites/default/files/shared/Corporate_Transparency_Act.pdf.
Will my cap table be made public?
FinCEN is required to keep all BOI submitted by reporting companies confidential. However, disclosure to third parties may be permitted in certain authorized instances, such as to applicable law enforcement agencies and other government authorities, and in some cases to financial institutions.
What do you suggest we do to prepare?
If you believe that your company or any entities affiliated with your business may be a reporting company, you should begin to compile relevant information on the beneficial owners of your applicable entities. At Gennari Aronson , we look forward to assisting our clients with determinations about reporting status or available exemptions, and in identifying beneficial owners.
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