Entities formed prior to January 1, 2024, that have not already confirmed an applicable exemption from filing requirements under the Corporate Transparency Act (CTA) should either confirm an applicable exemption under the CTA or prepare for a filing by January 1, 2025. The CTA, which came into effect January 1, 2024, requires that certain domestic and foreign “reporting companies” doing business in the United States disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). The CTA was enacted to combat money laundering, terrorism financing, and other financial crimes. This statute imposes criminal and civil penalties for any person who willfully provides — or attempts to provide — false or fraudulent beneficial ownership information to FinCEN or willfully fails to report complete or updated beneficial ownership information to FinCEN.1
A “reporting company” subject to the CTA is defined to mean a domestic or foreign reporting company, as follows:
- A “domestic reporting company” means any entity that is (i) a corporation, (ii) a limited liability company, or (iii) created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
- A “foreign reporting company” means any entity that is (i) a corporation, limited liability company, or other entity; (ii) formed under the law of a foreign country; and (iii) registered to do business in the United States by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
The CTA includes 23 categories of exemptions2 from the definition of “reporting company,” generally for entities already subject to substantial federal or state regulation under which beneficial ownership may be known. Under the CTA, reporting companies must file a report with FinCEN that provides information about:
- the reporting company;
- its “beneficial owners” (i.e., individuals who, directly or indirectly, either exercise substantial control over a reporting company or own or control at least 25% of the ownership interests of a reporting company); and
- solely with respect to a reporting company formed or registered after January 1, 2024, that entity’s “company applicants” — i.e., up to two individuals, consisting of:
- the individual who files the document that creates the domestic reporting company under state or tribal law; and
- the individual primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.
Please refer to the Sidley Update dated December 14, 2023 (and the Sidley Update dated January 2, 2024, with respect to private fund sponsors) for more information on the information required to be reported under the CTA.
Reporting companies that were formed or registered prior to January 1, 2024, must file an initial report with FinCEN by January 1, 2025. Determining whether a company is a reporting company under the CTA — and, if so, identifying the company’s beneficial owners — may be a fact- and time-intensive process. Furthermore, once it is determined that a filing must be made, it may take time to then collect the information required to be reported to FinCEN. Although there is no requirement to include any “company applicant” for those entities formed or registered prior to January 1, 2024, all other filing requirements of the CTA apply to the same extent as entities formed on or after January 1, 2024. Accordingly, companies should begin preparing now for the January 1, 2025, reporting deadline. Beneficial ownership reports may be filed at FinCEN’s website. For additional information and guidance on the CTA, see FinCEN’s Small Entity Compliance Guide and FinCEN’s Beneficial Ownership Information Frequently Asked Questions, which are updated periodically.
1 See Sidley’s prior alerts on the CTA: Update on the Corporate Transparency Act: Navigating a Potpourri of Possible Pitfalls (September 4, 2024); U.S. Corporate Transparency Act: Guide for Private Fund Sponsors (January 2, 2024); Updates on U.S. Corporate Transparency Act Beneficial Ownership Reporting Requirements (December 14, 2023); and FinCEN Finalizes Rule to Require Many Domestic and Foreign Entities to Report Beneficial Ownership Information to U.S. Government (October 4, 2022).
2 For more information on the 23 categories of exemptions, see the Sidley Update, dated December 14, 2023, and FinCEN’s Small Entity Compliance Guide.
Thank you to Knowledge Management Lawyer Katherine E. Gause for her significant contributions to this Sidley Update.
