Effective January 1, 2024, new Treasury regulations under the Corporate Transparency Act (CTA) will require many U.S. entities and foreign entities doing business in the United States to report identifying beneficial owner information to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The deadline follows the publication of Treasury’s final regulations on September 30, 2022.
All businesses with US entities (or foreign entities doing business in the United States) will be potentially affected by the CTA requirements, which are by no means limited to fund sponsors. This note, however, focuses particularly on those CTA compliance issues that are especially relevant to investment fund sponsors and private funds.
While many fund sponsors and their affiliated entities will be covered by one of 23 exemptions from the new reporting requirements, including an exemption specifically for registered investment advisers (RIAs) and venture capital fund advisers (VC Advisers) regulated under the U.S. Investment Advisers Act of 1940 (the Advisers Act), other fund entities may not necessarily be covered by an exemption and, therefore, would be deemed “Reporting Companies” under the FinCEN regulations.
Notably, for Reporting Companies formed before the 2024 effective date, initial reporting is due within one year – by January 1, 2025 – thereby providing ample time for fund sponsors and investment advisers to determine whether an exemption applies and, if not, to gather the relevant data required by FinCEN. Reporting Companies formed after January 1, 2024, however, will need to file reports with FinCEN within 90 calendar days of formation; entities formed after January 1, 2025, however, will need to file their reports within 30 calendar days. Any updates or revisions to the beneficial ownership information previously reported to FinCEN must also be filed within 30 calendar days. Failure to meet the reporting requirements can result in civil or criminal penalties, including the potential for significant fines or even imprisonment.
This brief note will explain (i) the relevant background of the CTA rules, (ii) who must file beneficial ownership information as a Reporting Company, (iii) what (and when) Reporting Companies must file and (iv) what constitutes a beneficial owner.