In 2020, the U.S. federal government passed the Corporate Transparency Act, which will require many U.S. companies to disclose their “beneficial owners’” identities. While many banks already have a similar requirement in place (“Know Your Customer” forms), most state governments have not required ownership disclosures, and this will be a big change. The requirement will go into effect in the next few months, but no later than January 1, 2022.
Under the new rules, most companies will have to file a form to be entered into a private database maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Database access will be limited to federal, state, and local law enforcement agencies; international law enforcement; and financial institutions (so long as the financial institution gets permission from the reporting company).
In general, corporations, limited liability companies, and other similar entities created by filing a form with a state government will be subject to this requirement, as will foreign companies that are registered to do business in the U.S. There are exemptions to this requirement, which include financial services companies, publicly-traded companies, non-profits, and companies that employ more than 20 full-time employees in a physical office in the U.S. and have filed a tax return with more than $5 million in gross receipts and/or sales.
If your company is not subject to an exemption, then the company will need to disclose each of its “beneficial owners,” defined in the Act as “any individual who directly or indirectly exercises substantial control over an entity AND holds or controls at least 25% of the ownership interest.” For each such person, the company must disclose the following information: name; date of birth; current address; and an identifying number (could include a passport number, driver’s license number, or a FinCEN number).
Failing to submit the required forms could result in severe civil and criminal penalties, including fines for failing to file of $500 per day; as well as fines of up to $10,000 and possible imprisonment for filing false information. The Act also includes civil and criminal fines and penalties for inappropriate use or disclosure of the information.
The exact effective date of the Act is not yet determined, but the effective date will eventually determine the reporting timeline. All companies formed on or after the effective date will have to report upon registration/formation. All companies that were formed prior to the effective date will have two years to comply.
We anticipate that these new reporting requirements will apply to many of our clients. If you own a business, or plan to start a business, please contact the attorneys at Demorest Law Firm for assistance in complying with the new reporting requirements, in order to avoid possible fines and penalties.
