As of January 1, 2024, most current and newly formed corporate entities in California must file reports on their “beneficial ownership” with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). These reporting rules were part of the Corporate Transparency Act (CTA), which itself was enacted by Congress as part of the 2021 Department of Defense authorization bill. The Los Angeles corporate law attorneys at Structure Law Group, LLP, can advise you on your company’s obligation under the new rules and how to avoid potential regulatory issues with FinCEN.
New Requirements for Disclosing “Beneficial Owners” of Foreign and Domestic Companies
At its core, the CTA is an effort to enhance the Treasury Department’s ability to identify and take legal action against potential money laundering activities. In adopting the CTA, Congress determined that many actors involved in illegal activities like terrorist and tax fraud used “shell” companies to conceal their identities and move their illegally obtained proceeds through the U.S. financial system undetected. Given that corporation law varies from state-to-state, there were no uniform national requirements for reporting the actual or “beneficial” owners of many corporate entities.
The CTA requires both domestic and foreign “reporting companies” to disclose the following information to FinCERN:
- the reporting company’s full legal name
- any trade names of DBAs used by the reporting company;
- the reporting company’s current address and jurisdiction of formation;
- the reporting company’s federal tax identification numbers;
- the full legal name of any individual beneficial owner of the reporting company;
- the date of birth, current address, and unique identifying number (such as a driver’s license number) for any beneficial owner; and
- an image of each beneficial owner’s identification documents.
A “reporting company” in this context means either a domestic business entity like a California corporation or limited liability company (LLC), or any entity formed in a foreign country and registered to do business in the United States. As the CTA takes effect on January 1, 2024, business entities created after that date must file their initial report with FinCEN within 30 calendar days after their creation. Preexisting business entities must file their initial report no later than January 1, 2025.
Reporting is also not a one-time requirement. A reporting company must notify FinCERN within 30 calendar days of certain changes in beneficial ownership. This includes transfers of ownership and sales of additional ownership interests. It also includes any changes to the identifying information of a previously reported beneficial owner, such as change to their address or government identification.
In terms of who is considered a “beneficial owner” under the CTA, it is anyone who “directly or indirectly” exercises “substantial control” over the reporting company or controls at least 25 percent of the ownership interests. A person exercises “substantial control” if they are a senior officer of the company, has the authority to appoint or remove senior officers, or in any way exercises substantial influence over the important decisions of the company.
Our Los Angeles Corporate Law Attorneys Can Help Your Business Stay in Compliance with the Law
Although the CTA’s reporting requirements are quite broad, there are a number of business entities that are exempt from its coverage. This includes companies already required to report to the Securities and Exchange Commission, tax-exempt entities, and many inactive entities. Our qualified Los Angeles corporate law attorneys can provide you with more specific advice on how the CTA may or may not affect your own business. Call SLG today at (310) 818-7500 or contact us online to schedule a consultation.