Search Our Blog

If I Hold an Ownership Interest in a Privately Held, U.S. Domiciled Entity, Will I Need to Disclose Beneficial Ownership Information?

By Anne Swenson, Associate Attorney & William Petti, Law Clerk of Shustak Reynolds & Partners, P.C. posted on Friday, October 29, 2021.

Anne E. Swenson

Anne E. Swenson

Associate Attorney

Location: San Diego, California
Phone: (619) 696-9500 (Ext. 127)
Direct: (619) 546-5567
E-mail[email protected]

The Corporate Transparency Act (“CTA”) will soon require U.S. domiciled or active entities to report beneficial ownership information to the U.S. Department of the Treasury’s (“the Treasury”) Financial Crimes Enforcement Network (“FinCEN”).[1]

Recognized as an amendment to the Anti-Money Laundering Act of 2020 (“AMLA”), Congress enacted the CTA to fill a gap in the regulatory framework that has long been exploited by bad actors. Depending on the State, individuals in the U.S. could form legal entities without actual business operations and without disclosing ownership (i.e., shell companies) to anonymously facilitate illicit activities such as money laundering and securities fraud.[2] Thus, intending to set a clear, federal standard for incorporation practices, Congress enacted the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”), amending the AMLA to now require that a “reporting company” disclose beneficial ownership information to the Treasury.[3]

“Reporting Company”

A reporting company is a corporation, LLC, or similar entity created by the filing of a document with a secretary of state or similar office under the law of a State or Indian Tribe.[4] An entity formed under the laws of a foreign county is also considered a “reporting company” if the entity is registered to conduct business in the U.S.[5]

“Beneficial Owner”

A “beneficial owner” is an individual who through any contract, arrangement, understanding, relationship, or otherwise: (1) directly or indirectlyexercises substantial control over the entity; or (2) owns or controls not less than 25 percent of the ownership interests of the entity.[6] Correspondingly, reporting companies must also disclose applicant information.[7]


There are, nevertheless, 24 enumerated entities exempted from the definition of a reporting company. The most notable exemptions include:

(1) registrants under federal securities laws (i.e., issuers of a class of securities registered under Section 12 of the Securities Exchange Act of 1934);

(2) governmental entities (i.e., entities established under laws of the U.S., an Indian Tribe, a State, or a political subdivision of a State, or under an interstate compact between 2 or more States);

(3) banks (i.e., any national bank and State bank, and any federal branch and insured branch, including any former savings association);

(4) credit unions (i.e., federal and State associations organized under applicable federal or State law for the purpose of promoting thrift among their members);

(5) bank holding companies (i.e., any company which has control over any bank or any company that is or becomes a bank holding company);

(6) savings and loan holding companies (i.e., any company that, directly or indirectly, controls a savings association or that controls any other company that is a savings and loan holding company);

(7) money transmitting businesses (i.e., persons owning or controlling business entities registered with the Treasury to provide money transfer services);

(8) brokers and dealers (i.e., persons engaged in the business of effecting transactions in securities for the account of others, or persons engaged in the business of buying and selling securities for such person’s own account through a broker or otherwise);

(9) exchanges (i.e., any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or otherwise performing functions commonly performed by a stock exchange); and

(10) clearing agencies (i.e., any person who acts as an intermediary in making payments or deliveries or both in connection with transactions in securities or who provides facilities for comparison of data respecting the terms of settlement of securities, to reduce the number of settlements, or for the allocation of settlement responsibilities). [8]

Other exemptions include such entities as registered investment advisers (that have filed Forms ADV), insurance companies, and certain tax-exempt organizations (e.g., 501(c) nonprofit organizations).[9] If an exempt entity holds a direct or indirect ownership interest in a reporting company, then the reporting company or applicant must simply list the name of the exempt entity and need not report the information otherwise required.[10]


After the applicable rule is promulgated,[11] reporting companies must deliver to FinCEN, a report identifying each beneficial owner. This report must include each beneficial owner’s full legal name, date of birth, residential or business street address, and unique identifying number from an acceptable identification document or FinCEN identifier.[12] Reporting companies in existence before the date of promulgated rule shall, “in a timely manner,” submit the report to FinCEN not later than 2 years after January 1, 2022, the date on which the rule is to be finalized.[13] Reporting companies coming into existence after the effective date of the rule shall submit the report at the time of formation or registration.[14] Reporting companies must also submit a report updating any changes to existing beneficial ownership information.[15]

FinCEN will retain beneficial ownership information for not fewer than 5 years and, upon request, may disclose such information to federal agencies engaged in national security, intelligence, or law enforcement activity.[16] Federal agencies may submit a request for information on behalf of a foreign agency, pursuant to a treaty, convention, or other information-sharing agreement.[17] State law enforcement agencies may similarly request beneficial ownership information, if authorized by a court of competent jurisdiction.[18]


A failure to deliver a complete (and truthful) report to FinCEN will carry civil fines to the tune of up to $500 for each day the violation is not remedied and may result in criminal penalties of up to $10,000 and/or imprisonment for up to 2 years.[19] Reporting companies must make compliance with the CTA a priority. We can help.


Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many broker-dealers, registered representatives, investment advisors, investors and businesses.
Attorney Anne E. Swenson can be reached in the firm’s San Diego office at (619) 696-9500.




[1] The regulator responsible for administering the AML framework is the Treasury within which lies FinCEN, our nation’s principal Financial Intelligence Unit. FinCEN possesses broad authority to promulgate and enforce rules “necessary and appropriate” to combat money laundering.

Treasury Order 180-01, 67 Fed. Reg. 64,697, *64,697 (Oct. 21, 2002) (codified in relevant part at 31 U.S.C. 310), Pub. L. No. 107-56, Tit. III, Sub. B, § 361(a)(2), 115 Stat. 272, 329-332.

[2] To evade detection after injecting illicit funds into the financial system, bad actors often layer a series of corporate transactions across various jurisdictions, much like Russian nesting dolls. See National Defense Authorization Act for Fiscal Year 2021 (“NDAA”), Pub. L. 116-283, div. F, Tit. LXIV, § 6402, Jan. 1, 2021, 134 Stat. 4604 [CTA § 6402]; see also NDAA § 6401 (providing that Sections 6402, 6403 [of NDAA] may be cited as the “CTA”). Hence, each time an investigator obtains ownership records for a domestic or foreign entity involved, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process. See CTA § 6402(3).

[3] See The Corporate Transparency Act: FinCEN to Collect Beneficial Ownership Information, JDSupra (June 24, 2021),

[4] 31 U.S.C.A § 5336(a)(11)(A)(i)-(ii) (West, Westlaw current through PL 117-39), Pub. L. 116-283. div. F, Tit. LXIV, § 6403(a), Tit. LXV, § 6509(b), Jan. 1, 2021, 134 Stat. 4605, 4633.

[5] Id.

[6] See id. § 5336(a)(3)(A)(i)-(ii) (italics added); see also § 5336(a)(3)(B)(i)-(v) (excluding from the definition: (i) minors; (ii) nominees, intermediaries, custodians, or agents; (iii) employees; (iv) heirs; and (v) creditors).

[7] See id. § 5336(a)(2)(A)-(B). An “applicant” is any individual who files an application to form a corporation, limited liability company, or other similar entity under the laws of any State or Indian Tribe. Id. The definition also includes individuals registering or filing application to register a corporation, limited liability company, or similar entity formed under the laws of a foreign country to do business in the U.S. Id.

[8] See 31 U.S.C. 5336(a)(11)(B), added by CTA Section 6403(a), as cited in FINCEN BEGINS REGULATORY PROCESS TO IMPLEMENT ‘BENEFICIAL OWNERSHIP’ REPORTING REQUIREMENT, Fed. Bank. L. Rep. P 157-524 (C.C.H.), 2021 WL 1431257, n.32 (Apr. 5, 2021).

[9] See 31 U.S.C.A § 5336(a)(11)(B) (Westlaw).

[10] Id. § 5336(b)(2)(B).

[11] Within a year of the CTA’s enactment, FinCEN must finalize and promulgate a rule specifying the procedures, methods, and standards governing beneficial ownership reporting.

Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 17,557, *17,561 (proposed Apr. 5, 2021) (to be codified at 31 C.F.R. pt. 1010),

[12] 31 U.S.C.A. § 5336(b)(2)(A)(i)-(II) (Westlaw).

[13] Compare § 5336(b) (“[T]he regulations shall be promulgated not later than 1 year after the date of enactment of this section.”), with Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg., supra note 11, at 17,561 (“The CTA requires the Secretary to promulgate regulations prescribing procedures and standards governing beneficial ownership reporting and the FinCEN identifier by January 1, 2022.”).

[14] 31 U.S.C.A. § 5336(b)(1)(C) (Westlaw).

[15] See id. § 5336(b)(1)(D).

[16] See id. § 5336(c)(1).

[17] See id. § 5336(c)(2)(B)(ii).

[18] See id. § 5336(c)(2)(B)(i)(II).

[19] See id. § 5336(b), (h). These penalties and fines will be assessed for failing to update a change in beneficial ownership or for willfully providing, or attempting to provide, false or fraudulent beneficial ownership information to FinCEN. Id.



Share This Article linkedin