Corporate Transparency Act of 2021

Congress passed the bipartisan Corporate Transparency Act in 2021 with the goal to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in the country’s marketplace. The law went into effect on January 1, 2024. Many companies must now report information regarding those individuals classified as beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

Who is a Beneficial Owner
A beneficial owner is a natural person who, either directly or indirectly, exercises substantial control over a reporting company, or owns/controls at least 25 percent of a reporting company’s ownership interests. Beneficial owners are real people as compared to trusts, corporations, or other legal entities which are not considered beneficial owners.

Substantial control can be exercised by a beneficial owner in four different methods.

• The individual has substantial control if they are a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
• The individual has substantial control if they have authority to appoint or remove certain officers, or a majority of directors of the reporting company.
• The individual has substantial control if they are an important decision-maker for the reporting company.
  • Important decisions include decisions about a reporting company’s business, finances, and structure. An individual that directs, determines, or has substantial influence over such decisions is considered to have substantial control.
• The individual has substantial control if they have any other form of substantial control over the reporting company as explained further in FinCEN’s Small Entity Compliance Guide (see Chapter 2.1, “What is substantial control?”).

An ownership interest establishes ownership rights in the reporting company, such as shares of equity, stock, voting rights, or any other mechanism used to establish ownership.

What Companies Must Report
Companies that need to report information regarding beneficial ownership fall into two categories:

1. Corporations, limited liability companies (LLC’s), or companies created in the United States by filing a document with a Secretary of State or any similar office under the law of a state or Indian tribe; or
2. Foreign companies that were registered to do business in any U.S. state or Indian tribe in the same manner.

There are twenty-three distinct types of entities that are exempt from the reporting requirement. For the full comprehensive list, visit Beneficial Ownership Information | FinCEN.gov.

Reporting Deadlines
Companies created or registered prior to January 1, 2024, have a deadline to report beneficial ownership information on or before January 1, 2025

Companies created or registered in 2024, must report beneficial ownership within ninety (90) calendar days after receiving actual or public notice that the company’s creation or registration is effective, whichever is earlier.

Companies that will be created or registered after January 1, 2025, will need to report beneficial ownership information within thirty (30) calendar days after receiving actual or public notice that its creation or registration is effective.

All updates or corrections to beneficial ownership information previously filed with FinCEN must be submitted within thirty (30) calendar days.

Beware of Scams!
FinCEN has issued a warning regarding targeted scam attacks towards entities and individuals subject to reporting. If you receive a notice from FinCEN regarding compliance, it is likely a scam because FinCEN does not send unsolicited requests for information.

RJS LAW
Are you a beneficial owner? Is your company required to report? The experienced attorneys of RJS LAW are available to assist you in determining your requirements and disclosure statements. For a no-cost consultation regarding the Corporate Transparency Act of 2021, any tax related issues, and/or estate planning needs, please contact us on the web at RJS LAW or by phone at 619-595-1655.

Written by Sean Erdman