The federal government recently passed a law requiring most companies to disclose their beneficial owners. The chief purpose of the statute is to prevent financial crimes. By mandating such disclosure, the Corporate Transparency Act (the “Act”) makes it difficult for individuals to conceal illegal activities using shell companies. New York State has also enacted its own version that will go into effect later this year.
The Corporate Transparency Act
All corporations and limited liability companies (with certain limited exceptions mentioned below) formed in 2024 are now required to report certain information regarding the entity within 90 days from the date of formation. This information includes the legal name and address of the entity, the state or other jurisdiction in which the entity was formed, as well as the taxpayer identification number for the entity. Additionally, the reporting entity is required to provide information regarding each beneficial owner including the owner’s full legal name and current residence address, the date of birth of each owner, the identification number from the beneficial owner’s U.S. passport or driver’s license and a scanned copy of whichever document is utilized for purposes of the identification. Once a beneficial owner files the required information, the Act provides that they can obtain a FINCEN identifier number which can be used to simplify future filings.
The same information is required for all entities formed or registered to do business in the United States before January 1, 2024, although the deadline for such filing for those entities under the Act is January 1, 2025. Any entity formed after January 1, 2025, must comply with these requirements within 30 days of its formation.
There is also an ongoing obligation to report any change in beneficial ownership within 30 days of such a change. This 30-day requirement also applies to the correcting of any errors made in reporting. The Act establishes civil penalties of up to $500.00 per day for every violation or failure to file. Anyone who willfully provides or attempts to provide false or fraudulent information is subject to fines of up to $10,000.00 and imprisonment for up to two years or both.
New York Law
New York passed a similar statute which takes effect on December 21, 2024, requiring entities to disclose information to the New York Department of State identifying each beneficial owner of the recording company. The state law applies to all non-exempt entities registered to do business in New York State. It exempts the same entities that are exempt under the federal law (including large operating companies with a United States presence and companies registered with the SEC and those companies whose parent companies are also exempt).
Entities formed on or before December 21, 2024, must file their initial disclosure by January 1, 2025. Those formed after December 21, 2024, must file the initial disclosure at the time of the filing of articles of organization or application for authority. Any updated disclosure must be filed within 90 days of the change. Entities that fail to comply with the New York filing requirement for a period exceeding 30 days will be subject to a civil penalty of $250.00 and will be shown as delinquent on the records of the Department of State until the disclosure has been filed and the $250.00 fine paid.
The takeaway from these new laws is that there will now be complete disclosure of the beneficial owners of any entity doing business in the United States. Further, businesses must pay attention to state laws where they operate. As with New York, other states will likely impose or may already have their own filing requirements and penalties for noncompliance.
If you are a member of an LLC or shareholder in a corporation registered to do business in New York or any other jurisdiction, please contact one of our business attorneys who can assist you in complying with the new federal and New York state requirements.