Here's how some investment clubs could be affected by the U.S. Corporate Transparency Act beginning in 2024.

In 2021, Congress enacted the Corporate Transparency Act, intended to make it harder for bad actors to hide or benefit from ill-gotten gains made by using shell companies or other opaque ownership structures. One provision of the act goes into effect in 2024, and requires certain entities to report "beneficial ownership information" (BOI) to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.

It is our understanding that General partnerships are not considered to be "reporting companies" under the act, so it is our view that investment clubs formed as such have no reporting requirements. If, however, a partnership had filed a creation document with their secretary of state or similar office, then it may be covered. (We do not follow state-level requirements for general partnerships in all states; if your state does require state-level registration for partnerships, and you have registered with the appropriate agency then you may be considered a "reporting company" under the act.)

On the other hand, Limited Liability Companies (LLCs) must register with their state, so they are covered by the Act and are specifically referenced along with corporations as "reporting companies" in FinCEN documentation. Limited Liability Partnerships (LLPs) are generally treated similarly to LLCs and so may also fall under the same provisions. We recommend that investment clubs formed as LLCs or LLPs consult the FinCEN website's Beneficial Ownership Information pages for details (especially the Small Entity Compliance Guide).

More Details

• BetterInvesting and myICLUB.com suggest that investment clubs form as general partnerships as a cost-efficient and effective entity for their operations. (See more.)
• "Beneficial Ownership" refers to an individual who directly or indirectly owns or controls at least 25% of a company, or exercises substantial control over the company such as senior officers. FinCEN's Small Entity Compliance Guide provides examples and worksheets to help determine who the beneficial owners are in a reporting company.
• Twenty-three types of entities are exempt from the beneficial ownership information reporting requirements. These entities include publicly traded companies, nonprofits, and certain large operating companies. In our view, none of the exemptions are specifically designed to apply to a traditional BetterInvesting style investment club.
• Reporting companies created or registered before January 1, 2024 have until January 1, 2025 to file their initial report.
• Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports.
• Reporting companies have 30 days to report changes to the information in their previously filed reports.
• All beneficial ownership information reporting is done electronically through the FinCen website.

Disclaimer

Neither ICLUBcentral, myICLUB.com, nor BetterInvesting provide personalized advice for any entity regarding FinCEN's Beneficial Ownership Information reporting requirements. If you have any questions about your particular situation, we advise you to check with FinCEN or a qualified attorney or accountant.