New Filing Requirements for Many Businesses
In Florida, the formation of a business as a corporation or limited liability company is a matter of public record. However, while the public record contains information about the registered agent, officers/directors and manager/members, no disclosure is required regarding the ownership of the entity. This is about to change.
Beginning January 1, 2024 corporations, limited liability companies and other entities created or registered to do business in the United States will, with limited exceptions, be required to report information about the beneficial owners of the company under the Corporate Transparency Act to United States Department of the Treasury Financial Crimes Enforcement Network. The following may help you better understand the new law:
What businesses are required to report beneficial ownership information?
Domestic reporting companies as well as foreign reporting companies are required to report information regarding its beneficial owners
The Act defines a domestic reporting company as: corporations, limited liability companies and “any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe”.
The Act defines a foreign reporting company as: a corporation, limited liability company, or other entity formed under the law of a foreign country, which is “registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe”.
These definitions would include limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships. Certain trusts are not included because they are not created by the fling of a document with the secretary of the state.
The Act does exempt twenty-three types of entities from the reporting of ownership requirement. The exempt entities include certain tax-exempt entities, certain inactive entities, certain large operating companies and public accounting firms that are registered under the Sabarnes Oxley Act. Most of the entities which are exempt from the reporting requirement are regulated by state and/or federal governments and already report beneficial ownership to government authorities. For a detailed listing of the entities exempt from reporting, refer to page 96-97 of https://www.govinfo.gov/content/pkg/FR-2022-09-30/pdf/2022-21020.pdf
What is a beneficial owner?
A beneficial owner under the Act includes “any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company”.
An ownership interest can be represented by shares of stock, but can also include other more complex arrangements such as capital and profit interests. For a detailed explanation of ownership interest refer to page 33 to 38 of https://www.govinfo.gov/content/pkg/FR-2022-09-30/pdf/2022-21020.pdf
An individual has substantial control if the individual can “direct, determine, or exercise substantial influence over, important decisions the reporting company makes”. Senior officers are also deemed to have substantial control over the company. The Act further states that “other rights or responsibilities may also constitute substantial control”. For more detailed information regarding what constitutes substantial control refer to page 28 to 33 of https://www.govinfo.gov/content/pkg/FR-2022-09-30/pdf/2022-21020.pdf
What information will have to be reported by the reporting company?
The reporting company will have to report each of its beneficial owner’s:
(1) name, (2) residential street address, (3) date of birth, (4) identifying number from an acceptable identifying document, (5) name of state/jurisdiction which issued the identifying document and (6) provide an image of the identifying document.
The reporting company will have to report: (1) its legal name, (2) any trade names, doing business as names, and trading as names, (3) the current street address of its principal place of business if that address is in the United States; if the reporting company’s principal place of business is outside the United States, the current address from which the company conducts business in the United States must be provided, (4) the jurisdiction where the reporting company was formed or registered, (5) its taxpayer identification number and (6) whether the report being filed is an initial report, an amended report or an updated report.
If the reporting company was formed on or after January 1, 2024, it will also have to report information regarding the “company applicants” which is defined as the person who directly filed the document that created or registered the reporting company and the person that was primarily responsible for directing or controlling the filing of the creation/registration documents. There can only be a maximum of two company applicants, but it is possible that only one person was responsible for and created the company.
For each company applicant, the reporting company will be required to submit the same information as was submitted for beneficial owners. However, if the formation documents for the reporting company were prepared and filed by an individual engaged in the business of corporate formation, for example an attorney, then the reporting company must report the current street address of the company applicant’s business and not the residential address of the individual.
What is the deadline for submitting the required information?
Reporting companies that were created or registered to do business prior to January 1, 2024 have until January 1, 2025 to file the required information for its beneficial owners and itself. Company applicant information does not have to be filed.
Reporting companies that were created or registered to do business on or after January 1, 2024 have 30 days to file the required information for its company applicant(s), itself and its beneficial owners. The 30-day period begins to run from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration.
Reports will not be accepted until January 1, 2024 and there is no fee for filing. Reports will be electronically submitted. The portal for filing the required information is still in development.