Under the Corporate Transparency Act (“CTA”), beginning in 2023, U.S. business entities (and overseas entities registered to do business in the U.S.) will be required to provide, and update as needed, identifying information on their direct and indirect individual owners (domestic or overseas). In-scope (“reporting”) companies formed or registered on or after 1 January 2024 must provide the required information within 30 days of creation; entities already in existence on that date must report on their beneficial owners by the end of 2024. These reports must be updated within 30 days of a change in the information previously submitted

Reporting companies will be required to file with an arm of the U.S. Treasury Department — specifically, into an electronic database currently under construction. The database will be searchable by governmental regulatory and law enforcement agencies, as well as by financial institutions in connection with their own “know your customer” procedures — but the general public will not have access to the database.

The required information includes the full legal name, date of birth, residential street address, a unique identifying number from a valid governmental document (passport, driver’s license, etc.) and an image of that document — in each case for every “beneficial owner” of the reporting company, as well as for the person filing the report on behalf of that company (the “company applicant”). A “beneficial owner” of a reporting company includes any individual who directly or indirectly owns at least 2% of, or exercises “substantial control” over, the reporting company.

The CTA carves out many types of companies from this reporting requirement, but few of these exceptions will apply to privately and family-owned businesses that are not operating in highly regulated industries. Investment holding companies (whether in real estate or securities) and entities conducting general commercial activities should expect to be subject to these requirements if their shares are not traded on a public securities market.

To prepare for this new requirement, we recommend that entities that are or may be reporting companies take immediate action to meet their upcoming reporting obligations (substantial civil and criminal penalties are imposed for non-compliance). Such preparations should include:

• collecting and reviewing the entity’s constitutive and governance documents;
• compiling a capitalization table that identifies the company’s owners;
• creating a roster of the entity’s directors, senior officers, managers, and other persons who have any form of substantial control over the entity (formal or otherwise);
• implementing a procedure to track changes in it’s beneficial owners and their personal information;
• and consider amending governance procedures to facilitate ongoing reporting.

The U.S. Treasury Department continues to issue new guidance to “fill in the blanks” of complying with the Corporate Transparency Act. We stand ready to advise on the scope and application of the CTA and to serve as company applicant for our clients’ reporting companies.

Please contact your regular Andersen Law attorney or email info@andersenlaw.llc for further details.