Most small and medium sized businesses will qualify as “Reporting Companies” under the Act. A Reporting Company is any corporation, limited liability company, or other entity created with the Secretary of State (or its equivalent) if that entity is not subject to an exemption. Note that sole proprietorships are not created by a filing and so are not expected to qualify as a Reporting Company under the Act1.

The Act exempts 23 types of entities from the definition of Reporting Company, including:

i) entities regulated by other federal authorities;

ii) large operating companies that employ more than 20 employees and who made more than $5 million in gross receipts of sales in the prior year;

iii) certain subsidiaries controlled or owned by other exempt entities;

iv) inactive entities; and

v) other possible exemptions to be created by the Secretary of the Treasury.

Businesses should consult with an attorney to determine whether they may be exempt from the reporting requirements.

A Reporting Company must include the following information about the company in its filing:

– The full legal name of the company
– Any trade name or DBA names used
– A complete current street address (note: a PO Box is not acceptable)
– The jurisdiction of formation
– The entity’s Employer Identification Number (EIN)

Information is also required about the Reporting Company’s Beneficial Owners. A Beneficial Owner is any individual who directly or indirectly (A) owns or controls at least 25% of the ownership interests of the Reporting Company; or (B) exercises “substantial control” over the Reporting Company.

A. “Ownership” is broadly defined in the Act and includes equity, stock, profits interest, convertible instruments, options to purchase ownership, or “any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.” Holding ownership through one or more holding companies will not affect the obligation to provide information about the ultimate owner(s) – an individual must be provided for every entity even if several layers of entities separate the individual from ownership on paper.

1 This is one very small perk of being a sole proprietorship. Note that sole proprietors do not enjoy limited liability with regard to company debts or liabilities. Most businesses should still have a legal entity even though it triggers this new filing requirement.

B. Whether someone has “substantial control” and should report beneficial ownership information will depend on the factual circumstances. Multiple people can have substantial control. An individual with substantial control might:

(i) be serving as a senior officer

(ii) have authority over a senior officer or the board of directors (or a similar body)

(iii) have the ability to direct, determine, or have substantial influence over important decisions made by the Reporting Company.

As you can tell, this determination will be fact dependent and business owners are encouraged to work with an attorney to determine what individuals should be included in the Beneficial Ownership section of the Reporting Company’s filing.

Note: Two important points to be aware of:

1) An employee is probably not a Beneficial Owner if their control over the entity is derived solely from their status as an employee (and they are not a senior company officer such as a CEO or CFO).

2) Individuals offering arms-length advisory or professional services (e.g. outside accountants, attorneys, business consultants) are probably not Beneficial Owners unless they also hold ownership or exercise substantial control.
The following information must be provided about each Beneficial Owner:

– Full legal name

– Date of birth

– Complete current address

– Unique identifying number and issuing jurisdiction from and image of one of the following non-expired documents:

• US passport

• State driver’ license

• Identification document issued by a state, local government or tribe

• Foreign Passport (if none of the previous documents are available)

C. Information about the Individuals who Formed the Entity

Entities created after January 1, 2024 must also disclose a “Company Applicant”. This is the person or persons (up to 2 individuals) responsible for the creation of the entity.

If you filed your own formation documents via the state office or through a website that forms companies, you should list your own information as Company Applicant.

**Only if Katherine Moore Law, LLC formed your entity for you: You must list Katherine Moore’s FINCEN Identifier in your filing as Company Applicant (FINCEN ID 3000-0009-0992).

Entities formed on or after January 1, 2024 must provide the required information to FinCEN via their secure filing system within 90 days of company formation.

Entities formed on or after January 1, 2025 must provide the required information within 30 days of company formation.

Companies formed before January 1, 2024 have until January 1, 2025 to provide the required information to FinCEN.

It is the Reporting Company’s responsibility to keep the reported information current. This is not an annual filing like an entity renewal. Instead, updates are required within 30 days of any change in the information provided about the Reporting Company and/or its Beneficial Owners.

The Act authorizes a civil penalty of up to $500.00 per day for each day that the violation continues and a fine of up to $10,000.00 and/or imprisonment for no more than two years.

It is illegal to willfully provide false or fraudulent reports or to willfully fail to report information or necessary updates to that information.

Willfulness is a requirement for incurring penalties. FinCEN has noted in its guidance that “any assessment as to whether false information was willfully filed would depend on all of the facts and circumstances….but as a general matter, FinCen does not expect that an inadvertent mistake by a reporting company acting in good faith after diligent inquiry would constitute a willfully false or fraudulent violation.”

Nevertheless, due to the possibility for significant penalties for failing to comply, business owners are encouraged to consult with counsel and to make concrete plans to comply including appointment of specific persons to handle the filing.

If desired, there is an option to obtain a “FinCEN identifier” by submitting an application to FinCEN. This will allow the individual or entity to provide their information via this identifier rather than submitting their personal information to any entity with which they are involved. FinCEN identifiers must be updated/corrected if any information associated with the identifier changes.

b. Confidentiality
Business owners are understandably concerned about access to the information submitted under the Act. The Act imposes strict confidentiality restrictions, however the information will be accessible to federal agencies as well as state, local, and tribal government agencies for national security, intelligence, and law enforcement purposes.

The information must be maintained in a secure database with security protocols. Information on Beneficial Owners will be maintained for at least five years after the Reporting Company terminates.

Also, the Department of the Treasury may access the information for tax administrative purposes.
Improper use or disclosure of the information could result in civil and criminal penalties.

c. This Firm will not handle filings

This Firm will not file on behalf of any clients. Despite a sincere desire to help, the administrative burden and potential liabilities associated with the requirement to update information that we do not control makes it impossible.

Nevertheless, we can certainly advise you with regard to any questions you might have about the filing or your obligations under the Act.

d. Key Actions

1. Consult with your business attorney.

2. Determine whether your entity is a Reporting Company and who its Beneficial Owners may be.

3. Determine when your first filing is due.

4. Determine who will be the company’s point person for filing reports under the Act.

5. Establish a process for collecting and securing the required filing information.

6. Request FINCEN Identifiers if desired.

7. Consider amending your organizational documents (Operating Agreement, Shareholder Agreement, etc.) to require that CTA reports be timely filed to avoid penalties for failure to file.

Please reach out with any questions as we all navigate this new regulation.

Business owners are understandably concerned about access to the information submitted under the Act. The Act imposes strict confidentiality restrictions, however the information will be accessible to federal agencies as well as state, local, and tribal government agencies for national security, intelligence, and law enforcement purposes.

The information must be maintained in a secure database with security protocols. Information on Beneficial Owners will be maintained for at least five years after the Reporting Company terminates.

Also, the Department of the Treasury may access the information for tax administrative purposes.
Improper use or disclosure of the information could result in civil and criminal penalties.

This Firm will not file on behalf of any clients. Despite a sincere desire to help, the administrative burden and potential liabilities associated with the requirement to update information that we do not control makes it impossible.

Nevertheless, we can certainly advise you with regard to any questions you might have about the filing or your obligations under the Act.

d. Key Actions

1. Consult with your business attorney.

2. Determine whether your entity is a Reporting Company and who its Beneficial Owners may be.

3. Determine when your first filing is due.

4. Determine who will be the company’s point person for filing reports under the Act.

5. Establish a process for collecting and securing the required filing information.

6. Request FINCEN Identifiers if desired.

7. Consider amending your organizational documents (Operating Agreement, Shareholder Agreement, etc.) to require that CTA reports be timely filed to avoid penalties for failure to file.

Please reach out with any questions as we all navigate this new regulation.