California limited liability company (and partnership) disputes | Courtroom war stories and lessons learned

LLC Members — Prepare to Identify Yourselves

The Corporate Transparency Act (31 USC §5336) goes into effect January 1, 2024.

Under the Act, most LLCs (and other entities) will need to supply basic personal identification data regarding their “beneficial owners” to the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCEN”).  The same requirement applies to “applicants” seeking to form a new entity.

“Beneficial owner” and “applicant”

Under the Act, “beneficial owner” is anyone who, directly or indirectly (1) exercises substantial control over the entity, or (2) owns or controls at least 25 percent of the entity.  “Beneficial owner” does not include minor children, an employee whose “control” of the entity stems purely from employment status, someone whose only interest in the entity is “through a right of inheritance,” and most creditors.

Reporting requirements are also triggered by changes in beneficial ownership.

An “applicant” includes anyone who: (1) files an application with the State to form an entity, or (2) registers or applies to register a foreign entity.

Not all LLCs

The Act provides a long laundry list of exceptions for certain entities that will not be subject to the reporting requirements.  Some of these include banks, credit unions, entities registered with the SEC, public accounting firms, political organizations, and entities with more than 20 full-time employees located in the United States.

Personal identification required

The information for each beneficial owner or applicant required for reporting includes:

  • full legal name
  • date of birth
  • current residential or business address
  • unique identifying number from an acceptable identification document (or an issued FinCEN identifier)

The information is maintained by FinCEN until at least 5 years after the entity terminates.  Disclosure of the information by FinCEN is allowed only upon proper request from limited sources, including: (1) a Federal agency engaged in national security, intelligence, or law enforcement activity; (2) a state or local law enforcement agency with a court order authorizing the request; (3) a Federal agency on behalf of a law enforcement agency from another country; (4) financial institutions fulfilling customer due diligence requirements; and (5) Federal regulatory agencies.

National security purpose

The Act provides that the personal information reporting requirement is aimed at “facilitating important national security, intelligence, and law enforcement activities” and facilitating financial institutions’ compliance with “anti-money laundering, countering the finance of terrorism, and customer due diligence requirements.”

The legislative materials relating to the Act indicate congressional concern regarding “malign actors” seeking to “conceal their ownership” of entities “to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States.”


The Act includes penalties for willfully failing to provide the required information or willfully providing false information.  A “safe harbor” protects mistakes in reporting that are promptly corrected.

The Act also provides penalties for unauthorized disclosure or use of the beneficial ownership information obtained from the reports submitted to FinCEN.