Beneficial ownership registry coming to the United States

Tuesday 18 July 2023

Richard E Andersen
Andersen Law, Pittsfield

Under the Corporate Transparency Act (CTA), beginning in 2024 United States business entities (and overseas entities registered to do business in the US) will be required to provide, and update as needed, identifying information on their direct and indirect individual owners (domestic or overseas). In-scope (reporting) companies formed or registered on or after 1 January 2024 must provide the required information within 30 days of creation; entities already in existence on that date must report on their beneficial owners by the end of 2024. These reports must be updated within 30 days of a change in the information previously submitted.

Reporting companies will be required to file with an arm of the US Treasury Department – specifically, into an electronic database currently under construction. The database will be searchable by governmental regulatory and law enforcement agencies, as well as by financial institutions in connection with their own ‘know your customer’ procedures, but the general public will not have access to the database.

The required information includes: the full legal name; date of birth; residential street address; a unique identifying number from a valid governmental document (passport, driver’s licence, etc); and an image of that document in each case for every ‘beneficial owner’ of the reporting company, as well as for the person filing the report on behalf of that company (the ‘company applicant’). A beneficial owner of a reporting company includes any individual who directly or indirectly owns at least two per cent of, or exercises ‘substantial control’ over, the reporting company.

The CTA carves out many types of companies from this reporting requirement, mostly of a type already operating in highly regulated industries. Privately held investment holding companies and entities conducting general commercial activities should expect to be subject to these requirements if their shares are not traded on a public securities market.

To prepare for this new requirement, entities that are or may be reporting companies should take prompt action to meet their upcoming reporting obligations, as substantial civil and criminal penalties may be imposed for non-compliance. Such preparations should include:

  • collecting and reviewing the entity’s constitutive and governance documents;
  • compiling a capitalisation table that identifies the company’s owners;
  • creating a roster of the entity's directors, senior officers, managers, and other persons who have any form of substantial control over the entity (formal or otherwise);
  • implementing a procedure to track changes in its beneficial owners and their personal information; and
  • considering amending governance procedures to facilitate ongoing reporting.

The US Treasury Department continues to issue new guidance to ‘fill in the blanks’ of complying with the CTA. Companies exposed to these requirements should contact competent US advisers promptly to advise on the scope and application of the CTA, and assist in compliance.