Early- and mid-stage companies should be aware of the new Corporate Transparency Act (CTA) 31 U.S. Code § 5336 which takes effect on January 1, 2024.  https://www.law.cornell.edu/uscode/text/31/5336.

By its terms, the CTA imposes on many of the U.S.’s 30,000,000 businesses an obligation to report beneficial ownership of those business. (Under the CTA, the term “beneficial owner” means, “with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise exercises substantial control over the entity; or owns or controls not less than 25 percent of the ownership interests of the entity…” subject to some specific exclusions.) Details of indirect or beneficial ownership are not usually required in state filings  – –  Delaware and California for example – – and many other states, but that ownership information must be provided to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) for any “reporting company”.   The reporting obligation is meaningful, but many businesses will have the benefits of exceptions to the definition of “reporting company”.  For example, many Laberee Law clients will satisfy this three-part exclusion: the business has (x) more than 20 employees; and (y) more than $5,000,000 is gross receipts; and (z) a physical presence in the United States.  So, for some New Years Eve will come and go without the CTA spoiling the fun.  There are other exceptions also, but they are too numerous to list here.  But start-up companies with non-U.S. ownership should examine the CTA to determine its applicability to them.

Reporting companies will include those formed under the laws of another country and registered to do business in the U.S. as well as, potentially, those formed under the laws of a U.S. state.  The CTA’s rationale is to reduce money laundering, terrorism financing and other illegal activities.  Businesses should not assume the CTA does not apply to them just because they are honest and legitimate; the CTA may still require disclosure and the penalties for non-compliance are meaningful.    Fortunately, companies have a good amount of lead time to prepare for the effective date on January 1, 2024.