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October 15, 2024

Corporate Transparency Act: Beneficial Ownership Information Filing Requirements Applicable to Family Offices

The Corporate Transparency Act (CTA), effective on January 1, 2024, requires beneficial owners of U.S. companies to disclose certain information about themselves to the Financial Crimes Enforcement Network (FinCEN).  While exemptions exist for certain companies and/or certain beneficial owners of such companies, such exemptions will not apply to most family offices.  This article summarizes how family offices may be affected, what information is required to be disclosed, and certain other considerations that family offices should take into account to ensure they are in compliance with the new law.

I. Background

What is the CTA?

The CTA was passed by Congress with the goal of disclosing information about the beneficial owners of, and the individuals who create, U.S. entities.  The required reporting information includes names and identification documents, such as a passport or U.S. driver’s license.  The reported information will be maintained by FinCEN and will be provided to federal agencies that submit a request to obtain such information if it is related to national security, intelligence and/or law enforcement needs.  Entities created in the year 2024 will need to report beneficial ownership information within 90 days of creation, while entities created before 2024 will need to file their initial report prior to January 1, 2025.  Failure to comply with the disclosure requirements may result in a fine of up to $500 per day (up to a total of $10,000) and imprisonment for up to two (2) years.  Therefore, it is essential that family offices understand the filing requirements and follow accurate record-keeping of all applicable entities.

Who Needs to File?

The CTA requires all “Reporting Companies” to report information on their “Beneficial Owners” and “Company Applicants.”  The CTA considers Reporting Companies to be any domestic or foreign limited partnership, limited liability company, or corporation that is registered to do business in the U.S., unless they qualify for an exemption (discussed below).  “Beneficial Owners” are individuals who own or control 25% of the ownership interests of a Reporting Company or exercise substantial control, directly or indirectly, over the Reporting Company. Individuals considered to have “substantial control” are generally those:   (x) in senior officer positions, (y) with authority to appoint or remove board members, or (z) with any other substantial control over the company.  “Company Applicants” are individuals who filed the formation and/or incorporation documents of the Reporting Company.

When filing their Beneficial Ownership Information, family offices are required to provide the following information on their Beneficial Owners and Company Applicants:
  • Full Legal Name;
  • Date of Birth;
  • Current Address (for Beneficial Owners);
  • Business Address (for Company Applicants);
  • Passport Number or Driver’s License Number;
  • Copy of Passport or Driver’s License; and
  • FinCEN Identifier (if applicable).
For family offices with multiple Beneficial Owners and/or Reporting Companies, it is important that they gather this information as soon as possible, so that they do not miss the applicable deadline(s).  As mentioned above:  (i) for entities formed in 2024, family offices will have 90 days from the date of entity formation; and (ii) for entities formed prior to January 1, 2024, filings must be completed by January 1, 2025.

II. Filings and Exemption Information for Family Offices

Family offices should take a close look at their organizational structure to determine if any of their entities fall under the definition of Reporting Companies.  This includes entities that were created solely for tax or management purposes.  Absent any exemptions, family offices will have to make the relevant filings disclosing beneficial ownership information.  Such filings will have to be made through the FinCEN e-filing system.
Important Exemptions for Family Offices

Not all entities created by family offices require their beneficial ownership information to be reported.  Importantly, investment vehicles are not exempt outright and must fall under one of the exempt categories.
 
For example, an entity will fall under an exemption if it is a registered investment adviser, a venture capital fund adviser, or a commodity pool operator.
Another exemption that may apply includes large operating companies.  A “large operating company” is defined as a company with:
  • More than twenty (20) full-time employees in the U.S.;
  • A physical office in the U.S.; and
  • More than $5 million in gross receipts.
Additionally, exemptions that may apply to family offices include tax-exempt entities (including non-profits), entities that have been inactive over the past twelve (12) months, and subsidiaries of Reporting Companies that fall under an exemption.

It is important for family offices to review their organizational structure to determine whether any of the above exemptions apply. 

Other Considerations for Family Offices

Family offices are faced with important considerations when it comes to beneficial ownership information filings. For example, there are no exemptions for family members who qualify as Beneficial Owners (except for minor children; provided their parents or guardians are listed).  All other family members who fall under the definition of Beneficial Owner must be included in the beneficial ownership filing.

Family offices should also consider whether any of their entities operate as private family trusts, as these may be exempt from the filing.  

III. Practical Application

As mentioned above, family offices should be reviewing their organizational structure and their ownership structure as soon as possible in order to facilitate compliance with the CTA.  Specifically, it is essential that every entity that has been created in connection with the family office is reviewed against specific CTA requirements to ensure that all of the relevant information is reported, if required.  Finally, family offices should develop a system for collecting the required information from Beneficial Owners so that such information can be reported timely and correctly in order to be in compliance with the new law. 

If you have any questions regarding this article or if you think you may need assistance with making a beneficial ownership filing, please contact Yehuda Braunstein at (212) 573-8029 or via email at ybraustein@sadis.com.