As a result of the Corporate Transparency Act (CTA) taking effect on January 1, 2024, countless existing and newly formed business entities (corporations, LLCs, or similar entities) will be required to report information regarding the entity’s beneficial ownership and controlling interests to the Finance Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department. Entities formed after January 1, 2024 are required to complete the reporting within 30-90 days (subject to the final regulations) of the entity’s formation and nearly all entities existing as of December 31, 2023 must complete the reporting by DecemberAs such, generally speaking all clients who have an ownership or managerial interest in any entity which is covered by the Act, whether currently existing or formed after January 1, 2024, will have to obtain and assemble and file all disclosure information and documentation required by the Act in order to be in compliance. A failure to comply may subject responsible parties to both civil and criminal penalties.
The regulations under the CTA are intended to prevent money laundering, terrorist financing and other illicit activities but the effect of compliance is likely to cause significant burdens on stakeholders. Entities will be required to electronically file a Beneficial Ownership Information Return with FinCEN for all beneficial owners with greater than 25% ownership or with “substantial control” over the entity but the specific form has not been released and certain of the related regulations are yet to be finalized. As a result of this uncertainty, questions remain as to exactly who needs to be listed in the reporting – one example is whether a beneficial owner holding an ownership interest of less than 25% of an entity but having certain limited voting or consent rights would be deemed to have “substantial control” for purposes of the CTA.
The attorneys at Zarwin Baum continue to monitor the proposed CTA regulations and the potential impact on our clients but all should be aware of these upcoming requirements and contact Zarwin Baum for any questions. At the very least, added provisions in all newly drafted entity constituent documents will be necessary in order to require all owners, partners and members of such entities to furnish the information and documentation necessary for reporting purposes. For existing entities, its principals will nonetheless be required to obtain the same information from existing owners.
In addition to the federal CTA, Pennsylvania’s Act 122 goes into effect on January 2, 2024 and will replace Pennsylvania’s existing decennial reports with an annual report required from all entities registered with the Pennsylvania Department of State. Among other information, the annual report must contain the names of directors, managers, managing members or similar governing individuals of the entity and the names and titles of principal officers, if any. The Department of State will send out two-month reminders of the filing deadline, which are set at various dates during the calendar year depending on the type of entity.
To discuss the contents of this article, or if you have any questions about the Corporate Transparancy Act, please contact one of the attorneys below.
Scott Goldstein segoldstein@zarwin.com 267-765-9680
Kenneth Fleisher kjfleisher@zarwin.com 267-765-9610
Alan Casnoff aecasnoff@zarwin.com 215-917-6869
Original source can be found here.