Corporate Transparency Act | Beneficial Ownership Information Database

In this section, we'll describe the Corporate Transparency Act of 2019 and the Beneficial Ownership Information Database.

What is the Corporate Transparency Act?

The Corporate Transparcy Act was passed into law Decemer 2019. The act requires that certain businesses disclose beneficial ownership information. This information will NOT be made public. The information in the database will be made available to government entities, law enforcement, and financial institutions.

What is beneficial ownership information?

Beneficial ownership information refers to identifying information about the individuals who indirectly or directly control or own a company or legal entity.

Why do companies have to report beneficial ownership information to the U.S Department of the Treasury?

Very few U.S. states or territories require companies to disclose information about their beneficial owners—the individuals who control or own or control companies or legal entities. This lack of transparency allows corrupty government officials, criminals, and other bad actors to hide their identities and launder illicit funds through the United States using front and shell companies. This in turn hurts ordinary Americans because the lack of transparency results in an uneven playing field for legitimate and honest U.S. businesses. The inaccessibility of beneficial ownership information also makes it hard for law enforcement to track and prosecute criminal activity.

In 2021, Congress, with support from both political parties, enacted the Corporate Transparency Act to address this problem. The Corporate Transparency Act requires certain types of U.S. and foreign entities to report information about their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network, commonly known as FinCEN. FinCEN is responsible for safeguarding the U.S. financial system from illicit use. Subject to strict controls and safeguards, FinCEN will disclose the reported beneficial ownership information to certain authorized government authorities, financial institutions, and other authorized users.

By collecting beneficial ownership information and sharing it with law enforcement, financial institutions, and other authorized users, FinCEN is making it harder for bad actors to benefit or hide their ill-gotten gains. Companies that report beneficial ownership information will contribute to this important goal.

Should my company report beneficial ownership information now?

No. No one needs to report beneficial ownership information to FinCEN until January 1, 2024. FinCEN is currently not accepting any beneficial ownership information reports.

When do I need to report my company’s beneficial ownership information to FinCEN?

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report.

A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration
is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

When will FinCEN accept beneficial ownership information reports?

FinCEN will begin accepting beneficial ownership information reports on January 1, 2024. Beneficial ownership information reports will not be accepted before then.

Will there be a fee for submitting a beneficial ownership information
report to FinCEN?

No. There will be no fee for submitting your beneficial ownership information report to FinCEN.

What companies will be required to report beneficial ownership information to FinCEN?

Certain companies — referred to as “reporting companies” — will be required to report their beneficial ownership information to FinCEN. There are two types of reporting companies — domestic reporting companies and foreign reporting companies.

A domestic reporting company is defined as —
•     a corporation,
•     a limited liability company, or
•     any other entity 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 is any entity that is —
•     a corporation, limited liability company, or other entity formed under the
law of a foreign country, AND
•     registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.
If you had to file a document with a state or Indian Tribal-level office such as a secretary of state to create your company, or to register it to do business if it is a foreign company, then your company is a reporting company, unless an exemption applies. For the definitions of both domestic and foreign reporting companies, a “state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States.

Are there exemptions from the reporting requirement?

Yes. The Corporate Transparency Act exempts 23 types of entities from the beneficial ownership information reporting requirement.

Below is a list of the types of entities
that are exempt —
(i) Certain types of securities reporting issuers.i
(ii) A U.S. governmental authority.
(iii) Certain types of banks.iii
(iv) Federal or state credit unions as defined in section 101 of the Federal Credit Union Act.
(v) Any bank holding company as defined in section 2 of the Bank Holding Company Act of 1956, or any savings and loan holding company as defined in section 10(a) of the Home Owners’ Loan Act.
(vi) Certain types of money transmitting or money services businesses.
(vii) Any broker or dealer, as defined in section 3 of the Securities Exchange Act of 1934, that is registered under section 15 of that Act (15 U.S.C. 78o).
(viii) Securities exchanges or clearing agencies as defined in section 3 of the Securities Exchange Act of 1934, and that is registered under sections 6 or 17A of that Act.
(ix) Certain other types of entities registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.v
(x) Certain types of investment companies as defined in section 3 of the Investment Company Act of 1940, or investment advisers as defined in section 202 of the Investment Advisers Act of 1940.
(xi) Certain types of venture capital fund advisers.vi
(xii) Insurance companies defined in section 2 of the Investment Company Act of 1940.
(xiii) State-licensed insurance producers with an operating presence at a physical office within the United States, and authorized by a State, and subject to supervision by a State’s insurance commissioner or a similar official or agency.
(xiv) Commodity Exchange Act registered entities.viii
(xv) Any public accounting firm registered in accordance with section 102 of the
Sarbanes-Oxley Act of 2002.
(xvi) Certain types of regulated public utilities.
(xvii) Any financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010.
(xviii) Certain pooled investment vehicles.5
(xix) Certain types of tax-exempt entities.xi
(xx) Entities assisting a tax-exempt entity described in (xix) above.
(xxi) Large operating companies with at least 20 full-time employees, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the United States.xiii
(xxii) The subsidiaries of certain exempt entities.
(xxiii) Certain types of inactive entities that were in existence on or before January 1, 2020, the date the Corporate Transparency Act was enacted.

Many of these exempt entities are already regulated by federal and/or state government, and many already disclose their beneficial ownership information to a governmental authority. Additional information about the entities that are exempt can be found in the Beneficial Ownership Information Reporting Regulations at 31 CFR § 1010.380(c)(2).

You should consult the text of the regulations, which include specific criteria for the exemptions, before concluding that an entity qualifies for an exemption.

Who is a beneficial owner of a reporting company?

In general, a beneficial owner is any individual (1) who directly or indirectly exercises “substantial control” over the reporting company, or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company. Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over, important decisions the reporting
company makes. In addition, any senior officer is deemed to have substantial control over a reporting company.xvi Other rights or responsibilities may also constitute substantial control. Additional information about the definition of substantial control and who qualifies as exercising substantial control can be found in the Beneficial Ownership Information Reporting Regulations at 31 CFR §1010.380(d)(1).

“Ownership interests” generally refer to arrangements that establish ownership rights in the reporting company, including simple shares of stock as well as more complex instruments. Additional information about ownership interests, including indirect ownership, can be found in the Beneficial Ownership Information Reporting
Regulations at 31 CFR §1010.380(d)(2).

Will a reporting company need to report any other information in addition to information about its beneficial owners?

Yes. The information that needs to be reported, however, depends on when the company was created or registered.

If a reporting company is created or registered on or after January 1, 2024, the reporting company will need to report information about itself, its beneficial owners, and its company applicants.

If a reporting company was created or registered BEFORE January 1, 2024, the reporting company only needs to provide information about itself and its beneficial owners. The reporting company does not need to provide information about its company applicants.

Who is a company applicant of a reporting company?

There can be up to two individuals who qualify as company applicants —
•     the individual who directly files the document that creates, or first registers,
the reporting company; and
•     the individual that is primarily responsible for directing or controlling the filing of the relevant document.

No reporting company will have more than two company applicants. If only one person was involved in filing the relevant document, then only that person should be reported as a company applicant. Only reporting companies formed or registered on or after January 1, 2024, will have to report their company applicants. Companies created or registered before January 1, 2024, do not have to report their company applicants.

What information will a reporting company have to report about itself?

A reporting company will have to report:
•     Its legal name;
•     Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
•     The current street address of its principal place of business if that address
is in the United States (for example, a domestic reporting company’s
headquarters), or, for reporting companies whose principal place of
business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters);
•     Its jurisdiction of formation or registration; and
•     Its Taxpayer Identification Number.
A reporting company will also have to indicate the type of filing it is making (that is,
whether it is filing an initial report, a correction of a prior report, or an update to a prior report).

What will a reporting company have to report about its beneficial owners and company applicants?

For each individual who is a beneficial owner or a company applicant, a reporting company will have to report:
•     The individual’s name, date of birth, and address;
•     A unique identifying number from an acceptable identification document; and
•     The name of the state or jurisdiction that issued the identification document.

Address: For a beneficial owner, the reporting company must report the residential street address. For a company applicant, the reporting company must report the individual’s residential street address. However, if an individual engages in the business of
corporate formation (e.g., as an attorney or corporate formation agent) and files the formation or registration document in the course of that business, then the reporting company must report the current street address of the company applicant’s business.
For example, if the company applicant is a paralegal who filed the document while working at a law firm, the reporting company must report the business address of the law firm where the paralegal worked when filing the document.

Identification Document: The list below sets out the forms of acceptable identification
documents:
•     A non-expired driver’s license issued by a U.S. state. A “U.S. state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States.
•     A non-expired identification document issued by a U.S. state or local government, or Indian Tribe that is issued for the purpose of identifying the individual. For example, a non-driver identification card issued by a state Department of Motor Vehicles would qualify because it is issued for identification purposes.
•     A non-expired passport issued by the U.S. government; or
•     If the individual does not have any of the three forms of identification document described above, the reporting company may provide the identifying number from a non-expired passport issued by a foreign government.

In addition, the reporting company must submit an image of the identification document associated with the unique identifying number reported to FinCEN.

How will I report my company’s beneficial ownership information?

If you are required to report your company’s beneficial ownership information to FinCEN, you will do so electronically through a secure filing system available via FinCEN’s website. This system is currently being developed and will be available before your report must be filed.

Who will be able to access reported beneficial ownership information and for what purposes?

The Corporate Transparency Act authorizes FinCEN to disclose beneficial ownership information in certain circumstances to six types of requesters:
•     U.S. Federal agencies engaged in national security, intelligence, and law enforcement activities;
•     State, local, and Tribal law enforcement agencies with court authorization;
•     The U.S. Department of the Treasury;
•     Financial institutions using beneficial ownership information to conduct legally required customer due diligence, provided the financial institutions have their customer consent to retrieve the information;
•     Federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations; and
•     Foreign law enforcement agencies and certain other foreign authorities who submit qualifying requests for the information through a U.S. Federal agency. The Corporate Transparency Act imposes stringent access requirements and safeguards on each group of requesters.

How will FinCEN protect beneficial ownership information reported to it?

Protecting the security and confidentiality of beneficial ownership information is a top priority for FinCEN. Federal law requires FinCEN to implement protocols to safeguard beneficial ownership information, to build a secure IT system to store the information, and to establish processes and procedures to ensure that only authorized users can access beneficial ownership information for authorized purposes.

FinCEN is developing the policies and procedures that will govern access to and handling of beneficial ownership information. FinCEN is also building a secure and confidential IT system to store the information. Consistent with Federal law, the system will be cloud-based, and will meet the highest Federal Information Security
Modernization Act (FISMA) level to keep beneficial ownership information secure.

FinCEN will work closely with those authorized to access beneficial ownership information to ensure that they understand their roles and responsibilities to ensure that the reported information is used only for authorized purposes and handled in a way that protects its security and confidentiality.

In this section, we'll describe the Corporate Transparency Act of 2019 and the Beneficial Ownership Information Database.

We hope this information was helpful to you. If you have any questions, please do not hesitate to call us at 1-800-423-2993 or 302-996-5819. Thank you for your interest in the Corporate Transparency Act.