Reported by: Terence Grugan, Peter Hardy, Wendi Kotzen, Beth Moskow-Schnoll, and Michael Robotti of Ballard Spahr LLP

The CTA (Corporate Transparency Act) and the Final Rule seek to maximize corporate transparency in order to deter money laundering, tax evasion, and other illicit activity by so-called “shell companies.” The net that has been cast, however, is very broad. All existing companies, and everyone contemplating the creation of a new company, will need (1) to review their structures and operations to determine whether they qualify for an exemption from the Final Rule, (2) if no exemption applies, to determine who qualifies as having sufficient ownership interests so as to trigger the reporting requirement, and (3) to identify everyone who exercises “substantial control” over the company and must be reported (a determination which may involve difficult judgment calls).

The Final Rule, which is effective as of January 1, 2024, was promulgated pursuant to the Corporate Transparency Act (CTA), enacted as part of the landmark Anti-Money Laundering Act of 2020. Congress passed the CTA because it found that the ability to operate through legal entities without requiring the identification of beneficial ownership information (BOI) posed important money laundering and terrorist financing risks to the U.S. financial system.

The Final Rule will have broad effect. FinCEN estimates that over 32 million initial BOI reports will be filed in the first year of the Final Rule taking effect, and that approximately 5 million initial BOI reports and over 14 million updated reports will be filed in each subsequent year.

In a nutshell, companies (including corporations, limited liability companies, partnerships, business trusts, etc.) subject to the BOI reporting rules (reporting companies) that are created or registered before January 1, 2024, will have one year, until January 1, 2025, to file their initial reports of BOI. Reporting companies created or registered after the effective date will have 30 days after creation or registration to file their initial reports. In addition to the initial filing obligation, reporting companies will have to file updates within 30 days of a relevant change in their BOI.

BOI reporting requirements apply to all domestic entities created by filing a document with a secretary of state or other similar office of a state or Indian tribe. A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. The Final Rule therefore does not apply to trusts not organized by filing a form with a secretary of state or similar office. The Final Rule also exempts 23 types of entities from the definition of “reporting company,” including SEC reporting companies, banks and credit unions, tax exempt entities, broker-dealers, investment companies and their advisors, and companies that (a) have 20 or more full-time employees in the U.S., (b) have an operating presence through a physical office in the U.S., and (c) filed a federal income tax or an information return showing more than $5 million in gross receipts or sales in the prior year.

Read full report: https://www.jdsupra.com/legalnews/beneficial-ownership-reporting-is-6869217/