By: Austin Stevenson
This is the second installment of a series of articles on the Corporate Transparency Act (“CTA”), set to be effective January 1, 2024, and set to affect the majority of small businesses and LLCs throughout the US. If you missed our first article providing a general overview of the CTA, you can find it linked here. This article dives deeper into who is a Beneficial Owner for a Reporting Company, and what information about them gets reported to the federal government.
The CTA requires Reporting Companies, a term for purposes of the CTA, covers nearly all small businesses, including single member LLCs, to report to the Financial Crimes Enforcement Network (“FinCEN”) who their Beneficial Owners are, and certain personal information about those Beneficial Owners.
Generally, this is anyone who:
- Directly or indirectly exercises substantial control over the Reporting Company OR
- Owns or controls at least 25% of the ownership interests of the Reporting Company. Note that to be an “owner” for purposes of the CTA, one does not actually have to own equity in the Reporting Company.
The Beneficial Owner can be anyone who meets those two prongs, and can be triggered by either ownership or control. For example, a Reporting Company may have Beneficial Owners who are senior officers (such as a President, CEO, COO, or General Counsel), other high level employees who have the ability to make decisions on behalf of the Reporting Companies, and traditional equity holders. Individuals holding other rights adjacent to traditional equity may also be a Beneficial Owner under the CTA, such as individuals holding a warrant, convertible debt, options, or profits interests, depending on the rights that the holder has.
In addition to reporting general information like the Reporting Company’s name, address, assumed names, tax ID number, and jurisdiction of formation, each Reporting Company must report, for each Beneficial Owner, that owner’s: full legal name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document). This last requirement may be in the form of a driver’s license or passport, for example.
Additionally, the CTA also requires new companies, meaning those Reporting Companies formed after January 1, 2024, to report information of their “Company Applicant”. A Company Applicant is the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States, OR the individual who is primarily responsible for directing or controlling the filing of the relevant document by another. Reporting Companies must report the same information of Company Applicants that they report for each Beneficial Owner.
Our next article will cover exemptions available under the CTA, as well as a few parting thoughts. If you have questions about the CTA or our corporate and business services, feel free to contact Austin Stevenson at RAStevenson@strausstroy.com or at 513.768.9745.