The reporting requirements of the Corporate Transparency Act (CTA) are currently scheduled to take effect on January 1, 2024. If you anticipate that you may need to form a new entity in the near future, you may benefit from implementing certain things before the end of 2023. Among these are:
- forming the entity on or before Friday, December 29, 2023;
- obligating “Beneficial Owners” to provide in writing that they will timely provide personal information which the entity is required to provide FinCen under the CTA; and
- establishing a policy and a protocol for handling personally identifiable information.
Why take these actions now?
- If your current plans include the need to form one or more entities in 2024 and if you expect that obtaining the required beneficial owner reporting information (BOI) may be difficult and you may need more than 30 days after the formation to file your BOI report with respect to the new entity with FinCEN, consider forming or registering the new entity prior to January 1, 2024. For entities formed prior to January 1, 2024, the time for filing the applicable BOI report will be extended to January 1, 2025, resulting in considerably more time to obtain the required information and make the filing.
- Because a Reporting Company will rely on individuals who own or control at least 25% of the ownership interests in the Reporting Company or who exercise substantial control over the Reporting Company, consider adding provisions to relevant documents that require such individuals on request of the Reporting Company to provide the Reporting Company with their accurate BOI information required by the CTA and provide the Reporting Company with an update of such information promptly (consider within five days) after any change so the Reporting Company will be able to file an amendment to its BOI report within thirty days after a change in such information. Examples of documents to which such provisions may be added include executive employment agreements, limited liability company operating agreements, shareholders agreements, equity subscription agreements, equity purchase agreements, and equity incentive agreements.
- In connection with BOI reporting, Reporting Companies may be receiving personally identifiable information (PII) from individuals. To the extent they don't already exist, security systems and procedures should be established now to protect any such PII and prevent the unauthorized disclosure or use of such information. In addition to other laws protecting PII, the CTA provides for significant penalties for the wrongful disclosure or use of such information.