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The Corporate Transparency Act (CTA) will burden small businesses across the country with new reporting requirements when it goes into effect on January 1, 2024. In an effort to counter financial crimes, the CTA will require “reporting companies” to disclose information about individuals, trusts, and other entities that qualify as “beneficial owners” of those entities. The required information must be submitted to the federal government’s Financial Crimes Enforcement Network (FinCEN). Failure to comply with the reporting requirements can result in up to $10,000 in fines and up to two years in prison.
The requirements can be found on FinCEN’s website, and an extensive summary can be found on Chartwell Law’s website here.
What is a reporting company?
A reporting company includes (1) any company that is created by filing a document with a secretary of state or similar office under the law of any one of the fifty states or (2) any foreign company that is registered to do business in the United States by filing a document with a secretary of state or similar office under the law of any one of the fifty states.
There are twenty-three narrowly defined exemptions to qualify as a reporting company. The broadest exemption is the large operating company exemption, which requires an entity to (1) employ more than twenty employees on a full-time basis in the United States, (2) have filed more than $5,000,000 in gross receipts or sales in the previous year’s federal income tax returns, and (3) have an operating presence at a physical office within the United States.
What is a beneficial owner?
Beneficial owners include (1) those entities or individuals who hold 25% or more ownership interest in a reporting company or (2) have “substantial control” of the reporting company. Beneficial owners with substantial control can be individuals, trusts, or other legal entities such as LLCs or corporations. Managers or officers of a reporting company, and anyone with the power to make major decisions affecting that entity, are included in the “substantial control” category.
What is the deadline for reporting to FinCEN?
Entities existing before January 1, 2024, must report by January 1, 2025. Entities created on or after January 1, 2024, must report within 90 days. After January 1, 2025, newly created entities must report within 30 days.
What information must be reported?
All reporting companies must report the following information for all beneficial owners: (1) full legal name, (2) date of birth, (3) current residential or business street address, and (4) a unique identifying number. To properly report a unique identifying number, beneficial owners must provide a passport, driver’s license, or other government issued identification document. Alternatively, beneficial owners can request a FinCEN identifier upon registration, which can serve as a unique identifying number in compliance with the CTA—one that does not expire.
The CTA is comprehensive, complicated, and overwhelming. We understand the uncertainty brought about by the legislative changes and will continue to follow related developments. Chartwell Law attorneys are available to answer any questions regarding the implications of the CTA. Please do not hesitate to contact us.
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