Navigating the US Corporate Transparency Act: new reporting rules for US companies and Australian companies registered to do business in the US

By Jacqui Barrett and Pragya Sharma

The United States (US) Corporate Transparency Act became effective on 1 January 2024, imposing new reporting requirements on US companies and Australian companies registered to do business in the US. ‘Reporting companies’ must submit a report containing beneficial ownership information to the US Financial Crimes Enforcement Network (FinCEN) within a certain period after their registration.  Penalties apply for non-compliance.

This article outlines the requirements imposed by the Act and what steps Australian companies with US subsidiaries or companies registered to do business in the US need to take to be compliant.

Companies required to report

Both domestic reporting and foreign reporting companies formed outside the US but registered to do business in the country by filing a document with a secretary of state or similar office, must report to FinCEN unless an exemption applies.

Companies should note there are 23 types of entities exempt from the reporting requirements, including government authorities, banks, credit unions, investment companies or investment advisers and venture capital fund advisers.

Reporting deadlines

Reporting companies registered before 1 January 2024 must make an initial report to FinCEN by 1 January 2025. However, companies registered on or after
1 January 2024 but before 1 January 2025 have only 90 days after registration to submit the required report. Any companies formed on or after 1 January 2025 have just 30 days to submit this report. Any changes to previously reported beneficial ownership information must be reported to FinCEN within 30 days of such change.

Information to be reported

A reporting company will be required to report information about itself, its ‘beneficial owners’ and its ‘company applicants’.

The company will have to report:

  • its legal name and any trading or ‘doing business as’ name;
  • US street address or if a foreign company, the address from which the company conducts business in the US (eg the company’s US headquarters)
  • taxpayer identification number; and
  • jurisdiction of formation or first registration.

The company will have to also report its beneficial owners’, and where companies are formed after 1 January 2024, its company applicants’:

  • name;
  • date of birth;
  • residential address; and
  • unique identifying number from an acceptable identifying document (eg a passport) and a copy of such identifying document.

Who is a ‘beneficial owner’?

A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company’s ownership interests. An individual can exercise substantial control over a reporting company through:

  • serving as a senior officer;
  • having authority over the appointment or removal of certain officers or a majority of directors (or similar body) of the reporting company;
  • being an important decision-maker for the reporting company; or
  • having substantial influence over important decisions.

Who is a ‘company applicant’?

Only companies created on or after 1 January 2024 will have to report information on its company applicant. The company applicant will be the individual who directly files the document that creates or registers the company with the secretary of state or similar office. If more than one person is involved in the filing, the second company applicant will be the individual primarily responsible for directing or controlling the filing.

Penalties

Penalties imposed for failure to comply with the new reporting obligations are significant. A person who wilfully fails to report beneficial ownership information, wilfully provides false beneficial ownership information, or wilfully fails to correct or update previously reported beneficial may be subject to a fine of up to US$500 for each day the violation continues (up to a maximum of US$10,000) and two years’ imprisonment.

How can companies prepare?

Existing reporting companies should start identifying their beneficial owners and gather the required information for each beneficial owner to report to FinCEN this calendar year.

Companies wanting to register to do business in the US or establish a new US subsidiary should introduce mechanisms prior to registration to ensure they can gather the required information from their beneficial owners to report to FinCEN within 90 days after registration.

Any questions?

If you need to know more about your obligations under the Corporate Transparency Act, please get in touch with Jacqui Barrett.

Contact

Jacqui Barrett

Jacqui Barrett

Partner & Head of US Desk

Jacqui assists clients with mergers and acquisitions, corporate structuring, capital raisings and managed investment schemes.

Related practices

You might be also interested in...

Corporate & Commercial | 21 Nov 2023

Insights on the reportable situations regime – how are we doing two years on?

ASIC recently released its second review of the reportable situations (or ‘breach reporting’) regime for AFS and credit licensees, two years after the changes took effect in October 2021.

Corporate & Commercial | 1 Nov 2023

Competition update: merger control reform and increasing regulator scrutiny

We consider Australia’s current merger control regime and the ACCC’s proposals to make merger notification mandatory.