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The Corporate Transparency Act and Foreign Entities

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For foreign companies, the United States can represent a significant market opportunity for international expansion. Unfortunately, regulatory requirements that were less stringent than those of other developed countries have also made the US an attractive target for bad actors seeking to launder money and fund illicit activities through anonymous shell companies. More than two million corporations and limited liability companies are created under the laws of the states each year, Congress has found. In fact, Global Financial Integrity, a policy organization focused on addressing illicit finance and corruption, notes that more public and anonymous corporations are created in the United States than in any other jurisdiction.

The Corporate Transparency Act (CTA) established beneficial ownership information (BOI) reporting requirements for certain types of corporations, limited liability companies, and similar business entities created or registered to do business in the United States to reduce the ability of individuals to hide their ownership of assets or investments to combat such illicit activity. While this provides greater transparency and accountability for legitimate foreign businesses expanding into the US market, it also imposes a new compliance burden. Before the filing requirement goes into effect on January 1, 2024, international companies currently doing business in or planning on registering to do business in the US soon should familiarize themselves with the law’s requirements.

Foreign Reporting Companies and Beneficial Ownership Information

In the CTA, a foreign reporting company is defined as a corporation, limited liability company, or other entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or similar office under the laws of a state or Indian tribe. The broad definition is intended to encompass a wide variety of business entities that have not been previously required to disclose their ownership or management under existing regulations.

A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company. The definition includes senior officers such as the president, CEO, COO, CFO, or general counsel. The reporting company must supply the required BOI for every individual identified as a beneficial owner as well as providing timely updates when that information changes.

Important Deadlines and Company Applicants

Of note for companies contemplating an entry into the US market but which have not yet registered to do business there is the considerable difference in filing deadlines for companies registered before and after January 1, 2024, when the requirement goes into effect. While existing companies have up to one year after January 1, 2024, to file their initial report with the Financial Crimes Enforcement Network (FinCEN), those registering to do business in the US on or after that date must file within 30 calendar days of when they are effectively registered. Therefore, such information should be determined as part of the planning stages prior to registration to ensure that it can be filed in a timely manner.

In addition, reporting companies registering after January 1, 2024, are also required to disclose company applicants to FinCEN; this is not required for existing companies. For a foreign entity, this is the individual who directly files the document that first registers the foreign reporting company, or, if more than one individual is involved in filing the document, the one who is primarily responsible for directing or controlling such filing.

To maintain ongoing compliance, reporting companies are required to file updated or corrected reports to FinCEN within 30 calendar days of when beneficial ownership changes from what was previously filed or when it becomes aware, or has reason to know, that previously filed information is inaccurate. Violations of the law carry both civil and criminal penalties for failure to file or willfully filing false or fraudulent information, so foreign reporting companies are strongly advised to adhere to applicable requirements and deadlines.

Understanding the US Market

For international businesses, Bridge Law LLP is your expert resource for achieving your business goals in the US. Our experienced attorneys can help you ensure ongoing compliance with applicable regulatory requirements in the US, including BOI reporting, as well as advising you on all aspects of working internationally. To schedule a consultation, contact us here today.

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