It is well-known that certain filings must be made at the state level when forming a corporation or limited liability company. For example, in Virginia, articles of organization or incorporation—depending on the entity being formed—must be filed with the State Corporation Commission that identifies the entity’s name, registered agent, registered office, and principal office. However, recent federal legislation provides that federal filings must also be made, in addition to the state filing, in order to form a corporation or limited liability company. This article is the first in a two-part series and will discuss the general requirements and purposes of the Corporate Transparency Act (“CTA”).
On January 1, 2021, Congress enacted the CTA as part of the National Defense Authorization Act. Under the CTA, all existing entities (which were formed by state filings) and each applicant forming a new entity must file a report with the Financial Crimes Enforcement Network of the Treasury Department (“FinCEN”) listing the entity’s beneficial owners. The list of beneficial owners must identify each beneficial owner by full legal name, date of birth, current residential or business address, and a unique identifying number for a non-expired U.S. passport, personal identification card, or driver’s license. In addition, the entity must submit annual filings to FinCEN containing a list of the company’s beneficial owners and any changes in the beneficial owners from the previous year.
Importantly, the information submitted to FinCEN will not be publicly available. However, FinCEN is authorized to disclose the information to U.S. federal law enforcement agencies; to certain other enforcement agencies with court approval; to non-U.S. law enforcement agencies, prosecutors, or judges based upon a request of a U.S. federal law enforcement agency; and, with the consent of the reporting company, to financial institutions and their regulators.
Among the stated purposes of the CTA is to establish a “clear, universal standard” for incorporation practices and to protect U.S. national security interests by reducing U.S. vulnerability to wrongdoings by entities with hidden owners. Although requiring existing and new entities to file information at the federal level may seem mundane, the CTA is unprecedented because it is the first time that the federal government has regulated the business entity formation process. Historically, formation and registration of business entities was entirely governed by state law.
The CTA has a prospective effective date, meaning that companies are not required to report the necessary information until the Secretary of the Treasury prescribes regulations, which must be done by January 1, 2022. In addition, existing entities will be given two years from the date the regulations are adopted to comply with the CTA’s reporting requirements.
Failure to satisfy the CTA’s reporting requirements may result in both civil and criminal penalties. Vandeventer Black’s corporate and business attorneys are available to assist with any questions related to CTA compliance.