New Federal Reporting Requirements for Small Businesses Now In Effect; New York to Impose Additional Reporting Requirements for LLCs Effective January 1, 2026

Authors: Brad J. Richter, Ann Berger Lesk, and Alex J. Schindler

Executive Summary

• As of January 1, 2024, new federal reporting requirements went into effect for millions of small businesses and privately held companies under the Corporate Transparency Act ("CTA"), affecting both existing and new entities formed or registered to do business in the U.S.
  
  
• All such entities classified by the new rule as "reporting companies" must file a Beneficial Ownership Information Report ("BOI Report") with the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCEN") by the applicable deadline, with both civil and criminal penalties for noncompliance, including monetary fines and even jail time.
  
  
• In addition, similar new disclosure requirements for limited liability companies ("LLCs") formed or authorized to do business in New York State will go into effect under the New York LLC Transparency Act ("NYTA") effective as of January 1, 2026.
  
  
• This Memorandum addresses important questions clients may have about the CTA and NYTA, including who must file information reports, the contents of the reports, the applicable deadlines, and important events that may require new filings.

What are the CTA and NYTA?

The CTA is a law passed by Congress in 2021 to fight the use of shell companies by criminal actors for money laundering, drug and human trafficking, funding of terrorism, tax evasion, and other financial crimes. Under the CTA, FinCEN was directed to propose rules requiring certain types of entities to file a report identifying the entities' "beneficial owners," among other information; the agency's final rule (the "Beneficial Ownership Information Reporting Rule" or "BOI Reporting Rule") has gone into effect as of January 1, 2024.

The NYTA is New York legislation signed into law by Governor Kathy Hochul on December 22, 2023, applicable solely to LLCs, but generally intended to align with the CTA in substance, with a focus on enhancing transparency and accountability for ownership of LLCs in New York. In addition, as originally signed, the NYTA would have required the New York Department of State ("NYDOS") to maintain a publicly accessible online database that will include the name, business address, and filing history of each LLC organized or authorized to do business in the State of New York, as well as the name of each of its beneficial owners, and such other information pertaining to such LLC as may be determined by NYDOS. However, the governor's approval was subject to a "chapter amendment," as described by a contemporaneous memorandum upon signing the legislation into law, signifying that the governor and legislature had agreed to pass an amending bill in the next legislative session to address acknowledged issues with the legislation's broad scope as written, including a need to limit access to this database to those in government with a law enforcement interest in the information. Final operating rules of the NYTA were clarified by amendment on March 1, 2024; these (i) removed the original provisions requiring that NYDOS make its database accessible to the public; (ii) provided for the confidentiality of information collected by NYDOS about beneficial owners who are individuals (subject to limited exceptions by written request or consent of the beneficial owner or, in certain circumstances, to Federal, state, and local government agencies); and (iii) updated the effective date and timeline for compliance with the NYTA's initial and annual filing obligations.

Which Business Entities are Subject to Reporting Requirements under the CTA and NYTA?

Pursuant to the BOI Reporting Rule promulgated under the CTA, all "reporting companies" must file a BOI Report with FINCEN by the applicable deadline. A reporting company is any entity, absent an applicable exemption, formed or registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a U.S. State or Indian tribe ("State" is defined broadly for these purposes, and includes Washington, D.C. and any commonwealth, territory, or possession of the United States, such as Puerto Rico and the U.S. Virgin Islands). Thus, a sole proprietorship, trust, or general partnership that does not require filing with a secretary of state's office is not a "reporting company."

The BOI Reporting Rule lists 23 applicable exemptions, many of them for already-regulated entities such as banks, investment advisors, insurance companies, and securities brokers and dealers, as well as public companies, governmental authorities, and tax-exempt entities, and for wholly-owned subsidiaries of the foregoing. In addition, there is an exemption for any "large operating company," defined to include any entity that employs more than 20 employees on a full-time basis in the U.S., has an operating presence at a physical office in the U.S., and had at least $5 million in gross revenue in the prior year, excluding gross receipts or sales from non-U.S. sources. Finally, there is an exemption for any "inactive entity," defined to mean an entity that was in existence before 2020; is not engaged in active business; is not directly or indirectly owned by a foreign person; has not experienced any change in ownership in the preceding 12-month period; has not, in the preceding 12-month period, sent or received any funds in excess of $1,000 directly or through any financial account in which the entity or any affiliate had an interest; and does not otherwise hold any kind or type of assets, whether in the U.S. or abroad, directly or through another entity. No further action is required from exempt companies under the CTA.

The NYTA will require the submission of a beneficial ownership disclosure with NYDOS from each LLC organized in the State of New York and each LLC organized in another state that is authorized to do business in the State of New York. While the NYTA recognizes the exemptions included in the CTA and summarized above, an LLC that was organized or applied for authority to do business in New York prior to the NYTA's effective date of January 1, 2026 that is exempt from filing a BOI Report under the CTA must still electronically file with NYDOS an "attestation of exemption," on penalty of perjury, by January 1, 2027, specifying which exemption from reporting under the CTA applies to the LLC and the facts on which the exemption is based, and from and after the effective date of January 1, 2026, an LLC newly organized or applying for authority to do business in New York must file a Beneficial Ownership Disclosure that includes such an attestation of exemption when filing its articles of organization or its application for authority to do business in the state.

What Must Affected Entities File to Comply with the Reporting Requirements of the CTA and NYTA?

A reporting company under the CTA must submit a BOI Report disclosing information about both the company, and each person deemed a "beneficial owner" or "applicant" (see below). Required company information includes the full legal name, trade names or d/b/a names, principal place of business, state (or tribal, or foreign) jurisdiction of formation (and, if foreign, the state or tribal jurisdiction where first registered in the U.S.), and taxpayer identification number of the company. Beneficial owner and applicant information includes each beneficial owner's and each applicant's full legal name, date of birth, address (residential address, for beneficial owners; business address, for applicants who form or register entities in the course of their business), and unique ID number from a permitted identification document such as a passport or driver's license number, together with a photocopy of each such identification document.

An individual or business entity may obtain from FinCEN a unique identifying number (a "FinCEN ID") associated with the above information, whereupon each individual beneficial owner can supply their FinCEN ID to a reporting company in lieu of supplying the information above, and the reporting company can supply the FinCEN ID in lieu of this information in its BOI Report. This may prove the most practical solution for many companies, as a beneficial owner may update his or her FinCEN information whenever there are changes, rather than requiring updated filings from each entity of which he or she is deemed a beneficial owner. BOI Reports can be electronically filed, and optional FinCEN ID's may be obtained, on FinCEN's website.

An LLC required to submit a beneficial ownership disclosure with NYDOS under the NYTA will have to submit information of each of its beneficial owners, including name, date of birth, business address, and a unique identification number from an official identification document (such as a driver's license or passport; unlike the reporting rules under the CTA, the NYTA does not require a copy of the identifying document). Under the current law, any LLC required to submit its beneficial ownership disclosure under the NYTA may satisfy such obligation by submitting a copy of the current BOI Report filed with FinCEN under the CTA so long as the report contains all of the requisite information, but the completeness of the BOI Report for this purpose may not be taken for granted insofar as the CTA and NYTA differ in technical details of the required disclosure. For example, while the CTA does not require BOI reports to include company applicant information for entities formed prior to the CTA's January 1, 2024 effective date, the NYTA does require company applicant disclosures for LLCs formed or authorized to do business in New York prior to the January 1, 2026 effective date. In addition, the CTA specifically requires disclosure of each beneficial owner's residential address, and specifies use of a business address only for company applicants who form or register entities in the course of their business, while the new provisions of the New York LLC Law (as amended to give effect to the NYTA) specify that a beneficial ownership disclosure must include each beneficial owner's "current business street address." Unfortunately, the NYTA did not provide for anything parallel to a FinCEN ID, and a FinCEN ID may not be used in lieu of required beneficial owner information in a beneficial ownership disclosure with NYDOS under the NYTA.

Who are the "Beneficial Owners" and "Applicants" of an Entity?

Under the CTA, "beneficial owners" include any individual who directly or indirectly either (i) exercises substantial control over the entity (including any senior officer, such as a CEO, COO, CFO, president, general counsel, or similarly authorized officer regardless of official title; any person with authority to appoint and remove senior officers or a majority of the board of directors or similar management body of the entity; and any individual who directs, determines, or has substantial influence over important business decisions of the company), or (ii) owns or controls at least 25% of the ownership interests of the reporting company. These are respectively referred to as the "substantial control test" and "ownership test." The CTA does not limit the number of people who may be considered beneficial owners by meeting either of these tests. The "applicants" of an entity include the person who directly files the information or registration document of the reporting company, and the person who was primarily responsible for directing such filing (a maximum of two "applicants" in total); entities formed prior to 2024 will not need to provide BOI reports for their applicants under the CTA.

The NYTA as amended adopts the CTA's definitions of "beneficial owner" and "applicant." The NYTA recognizes the same exemptions to its beneficial ownership disclosure requirement as the CTA; however, an entity that is exempt from reporting under the CTA is still required to file an attestation of exemption with NYDOS indicating the applicable exemption (and its factual basis) by the applicable deadline described above. Furthermore, as noted above, while the CTA does not require BOI reports to include applicant information for entities formed prior to the CTA's January 1, 2024 effective date, the NYTA does require applicant disclosures for LLCs formed or authorized to do business in New York prior to its January 1, 2026 effective date.

Application of the CTA and NYTA to trusts is not as clearly delineated as to corporate entities. While a trust is not itself a reporting company ordinarily, the regulations that define beneficial ownership under the CTA (and which are adopted by the NYTA for its definitional purposes) do attribute beneficial ownership to individuals who meet either the substantial control test or the ownership test, whether directly or indirectly, through a trust or similar arrangement, and/or through intermediary entities. At minimum, the regulations would generally require a beneficial ownership report to include the following persons connected with a trust that exercises substantial control over, or owns or controls at least 25% of the ownership interests of, a reporting company (in each case within the meaning of these rules), whether directly or indirectly: (i) the Trustee(s) of the trust, (ii) any other individual with authority to dispose of trust assets; (iii) any beneficiary of a trust that holds an ownership interest who is the sole permissible recipient of all of the trust's income and principal, or who has a right to demand a distribution of or withdraw substantially all the trust assets; and (iv) a grantor or settlor of the trust who retains a power to revoke or withdraw all the trust assets. Beyond these enumerated examples, indirect control over a trust whose ownership or control of a reporting company would trigger reporting requirements is not as clearly addressed by the rules as to trusts as the same appears to be with respect to corporate entities; that is, it is not certain under existing authority whether an individual (which is sometimes the donor of the trust or the donor's spouse, or a "trust protector" or similar party) who has the ability to remove Trustees and appoint successor or co-Trustees (including the appointing party, in some cases), or an investment advisor who may direct the trustee's investment decisions, would be considered a "beneficial owner" of the reporting company for reporting purposes; whereas an individual would clearly meet the requirements of the substantial control test as a beneficial owner of a reporting company by holding the power to appoint or remove senior officers of a reporting company, or to remove or appoint a majority of its board of directors, or to control company investments.

What are the Deadlines to Comply with the New Filing Requirements of the CTA and NYTA? What About Subsequent Filings after an Initial Filing with FinCEN or NYDOS?

Under the CTA and rules promulgated thereunder, reporting companies formed prior to January 1, 2024 have until January 1, 2025 to file a BOI report. New companies formed in 2024 must file a BOI report with FinCEN within 90 days of their formation. New companies formed from and after January 1, 2025 will have only 30 days to file a BOI report after their formation. Note that, while there is no annual or other periodic filing requirement after the initial BOI report, reporting companies must file an amendment within 30 days after any changes to their reported information.

Under the NYTA as amended, an LLC organized or authorized to do business in the State of New York before the effective date of the NYTA (January 1, 2026) must submit its Beneficial Ownership Disclosure to NYDOS no later than January 1, 2027. An LLC organized or authorized to do business in the State of New York from and after the NYTA's effective date must submit its beneficial ownership disclosure (or attestation of exemption) when it files its articles of organization or its application for authority to do business in New York. In addition to this initial filing, each reporting LLC must file an annual statement with NYDOS to confirm or update its beneficial ownership disclosure information, the address of its principal office, its exemption status (if any), and any other information NYDOS may require.

Unlike the CTA, the NYTA does not impose a uniform deadline on reporting companies to file an amendment after a change occurs to the reported beneficial ownership information. Rather, it provides separate rules for LLCs organized in New York ("domestic LLCs") and LLCs not organized in New York ("foreign LLCs") authorized to do business therein. If a domestic LLC has filed its initial Beneficial Ownership Disclosure by the applicable deadline, and information therein has subsequently changed, the New York LLC Law as newly modified by the NYTA will require the company to file "updates" to its Beneficial Ownership Disclosure (or its attestation of exemption) only at the time the company files an amendment to its articles of organization. Likewise, a foreign LLC that has applied for authority to do business in New York must file any "updates" to its Beneficial Ownership Disclosure (or attestation of exemption) at the time it files an amendment to its application for authority to do business in New York. However, a foreign LLC is required to amend its application for authority to do business in New York "upon any change" in the beneficial ownership information required to be contained in its Beneficial Ownership Disclosure. The statute imposing this requirement does not specify a deadline for this filing obligation, but the statutory language suggests that it applies immediately upon any change.

Both the CTA and the NYTA make provisions for filing corrections to an inaccurate report. Corrections to BOI reports must be filed with FinCEN under the CTA within 30 days after a reporting company becomes aware of (or has reason to be aware of) an inaccuracy, while the NYTA requires corrected reports to be filed with NYDOS within 90 days of the filing of a beneficial ownership disclosure.

Who Will be Able to Access Beneficial Owner Information Submitted to FinCEN and NYDOS under the CTA and NYTA?

BOI reports submitted to FinCEN will not be public, and will generally be disclosed only to federal, state, tribal, and local law enforcement agencies, or federal national security and intelligence agencies, for specified reasons, or to financial institutions with the consent of the reporting company (e.g. for "KYC" purposes), or to officers and employees of the U.S. Treasury Department in connection with their official duties.

Under the NYTA, as amended, information collected by NYDOS about beneficial owners who are natural persons will be maintained in a secure database and remain confidential, except to the extent disclosure is requested by written request, or voluntary written consent, of the beneficial owner, though federal, state, and local government agencies will have access to the database under certain circumstances.

This is in contrast to the controversial provisions of the original NYTA legislation, which required the secretary of state to maintain on its website a publicly available database including the name (and previous names, if any), business address, and filing history of each LLC organized or authorized to do business in New York, as well as the full legal name of each of its beneficial owners.

What are the Penalties for Noncompliance under the CTA and NYTA, and Who is Liable?

The CTA expressly provides for severe civil and criminal penalties for noncompliance, including willfully providing (or attempting to provide) false or fraudulent beneficial ownership information, or willfully failing to report complete or updated beneficial ownership information, including a fine of up to $500 per day, for a maximum of up to $10,000, per reporting company, and imprisonment of up to two years for knowing and willful violators.

The NYTA likewise contains civil penalties for noncompliance or knowingly providing (or attempting to provide) false or fraudulent beneficial ownership information. Under the NYTA, an LLC that fails to file its beneficial ownership disclosure (or statement of exemption) within 30 days after the applicable filing deadline will be shown to be "past due" on the records of NYDOS until the disclosure is filed, and will be shown to be "delinquent" on the records of NYDOS if the disclosure is not filed within a two-year period from the applicable deadline. The Attorney General of New York may assess a fine of up to $500 per day for each day that a reporting company has been in either delinquent or past due status. An LLC will remain in past due or (if applicable) delinquent status until it files its required disclosure together with a $250 fine and any penalties imposed by the Attorney General. The status of "past due" or "delinquent" may affect an LLC's ability to complete certain business transactions with parties requesting a certificate of status from such LLC. Furthermore, an LLC that is delinquent in filing its beneficial ownership disclosure (or attestation of exemption, if applicable), or that has knowingly provided or attempted to provide fraudulent or false information in its beneficial ownership disclosures, may be dissolved or lose its authority to do business in New York through an action brought by the Attorney General. While no express criminal penalties are specified under the NYTA, knowing or willful misrepresentation, fraud, or perjury on an attestation of exemption may still subject violators to criminal prosecution under other laws.

What Kinds of Changes Might Require Filing New Reports under the CTA and NYTA?

Under the CTA, any change to the beneficial ownership of a company, as determined by the "ownership" and "substantial control" tests described above, requires the filing of an amendment to the BOI Report within 30 days of the change. Some relatively straightforward scenarios triggering this amendment requirement would include changes of "beneficial owners" due to changes of personnel in the board of directors, managers, or owners of a company. In addition, with respect to closely held companies owned wholly or partially by family trusts, in many instances the Trustee's control of trust property would constitute beneficial ownership, making a change of Trustee a reportable event as well. Furthermore, a change in address of any of the foregoing beneficial owners would also require filing an amendment. However, to the extent each beneficial owner has a FinCEN ID, a single update to the address information associated with such beneficial owner's FinCEN ID would suffice to update such beneficial owner's address across all reporting companies that have used the beneficial owner's FinCEN ID in their BOI Report filings.

On the other hand, as noted above, not all changes to beneficial ownership information require the immediate filing of an amendment under the NYTA. For example, while an immediate filing of an amendment to the application for authority to do business in New York, together with an amended or updated beneficial ownership disclosure, would be required in the case of a foreign LLC, a domestic LLC would not need to update or correct this information until the earlier of (i) the next time it was required to amend its articles of organization, and (ii) the deadline for its next annual filing. Unfortunately, updating the address associated with a FinCEN ID will not help with submitting information for NYTA compliance under the current law.

Concluding Remarks

With the year-end deadline for filing BOI Reports with FinCEN under the CTA quickly approaching, we urge clients who have not already done so to contact their tax professionals, who may be able to assist in preparation and filing of BOI Reports. Some clients with relatively simple companies with few owners or controlling persons may even find BOI Reports relatively straightforward to file on FinCEN's website, which includes a helpful FAQ page. FinCEN has also published a more detailed small business compliance guide, with a number of checklists and flowcharts to facilitate accurate reporting. Otherwise, a number of established and well-known commercial services that handle other required corporate filings for businesses have begun to offer BOI Report filing services, as have numerous newer companies. Please do not hesitate to reach out if you are unsure whether a reporting obligation under the CTA or NYTA applies or will apply to your company.

This communication is for general information only. It is not intended, nor should it be relied upon, as legal advice. In some jurisdictions, this may be considered attorney advertising. Please refer to the firm's data policy page for further information.