Commencing January 1, 2024, the Corporate Transparency Act (“CTA”) will come into effect and was designed to combat the proliferation of illicit activities through the use of corporate vehicles. The CTA creates an obligation for newly-formed and smaller U.S. corporate entities and foreign entities doing business in the U.S. to file with FinCEN a report of beneficial ownership to disclose the control persons of a corporate entity which applies generally with exemptions. Such entities are known as Reporting Companies and such entities formed before January 1, 2024 will have until January 1, 2025 to file the initial beneficial ownership report with FinCEN and applicable entities formed on or after January 1, 2024 will have 30 days from time registration of such entity is effective to file the initial report.

Under the CTA, a Beneficial Owner is defined as any entity or individual who (i) exercises substantial control of the entity or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.

Exemptions to Reporting Companies includes for example:

  1. certain Pooled Investment Vehicles that have claimed and exemption from registration pursuant to Section 3(c) of the Investment Company Act and are managed by a bank, credit union, registered broker-dealer, registered investment adviser, or venture capital adviser
  2. certain larger US-based companies that have more than 20 employees and can demonstrate $5,000,000 of gross receipts or sales in its previous fiscal year
  3. shell companies that are inactive and has not received funds greater than $1,000 in the preceding 12-month period, and other entities as exempted under the CTA.

Syndications, and Pooled Investment Vehicles (Private funds) may be subject to reporting requirements under the CTA if an exemption is not met. Failure of a non-exempt Reporting Company to file timely beneficial ownership report with FinCEN or amend reports accordingly may subject the Company or its authorized representative to certain civil and/or criminal penalties.

This material is educational material and not to be construed as legal advice. All legal matters may involve further granularities and nuances, please contact a qualified attorney for further information.