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The Corporate Transparency Act

If you own, manage, or control all or part of a business entity established by filing with the secretary of state (including LLCs, LPs, LLPs, and Corporations), please carefully review this alert, and contact our firm if you have any questions or concerns, or need assistance in complying with these new requirements. 

 

WHAT IS THE CORPORATE TRANSPARENCY ACT?

The Corporate Transparency Act (“CTA”) went into effect on January 1, 2024, under the 2021 National Defense Authorization Act. This act imposes new Federal reporting requirements on businesses. The CTA aims to prevent and combat illegal activity including: money laundering, foreign interference, fraud, and more. The CTA requires nearly all businesses in the United States to file reports with the Financial Crimes Enforcement Network (“FinCEN”). All business entities (including those formed before January 1, 2024) are potentially subject to the CTA and will be required to file and update reports with FinCEN. These reports require various information about:

  1. The “Reporting Company” (the business),

  2. Their “Beneficial Owners” AND

  3. The “Company Applicant” (the individual(s) who filed the business’ formation documents with the secretary of state)


What is a “Beneficial Owner”?

A “Beneficial Owner” is an individual who:

  • Directly or indirectly has a significant ownership stake in a company,

  • Has a major influence on the reporting company’s decisions or operations,

  • Owns at least 25% of the company's shares, OR

  • Has a similar level of control over the company's equity.

 

IS MY BUSINESS SUBJECT TO THE CTA?

All businesses should assume they are required to report, as the overwhelming majority of businesses will be required to report. While there are some exceptions to the reporting requirements for certain types of businesses, these exceptions are generally limited to very large companies, and to companies in industries that are already highly regulated by the Federal government.

 

WHAT INFORMATION DO BUSINESSES NEED TO REPORT TO FINCEN?

Information will be stored in a database to share that data among law enforcement, national security agencies, financial institutions, and FinCEN.

Information that must be reported about each business (“Reporting Company”) includes:

  1. Full legal name of the company

  2. All trade names and “DBA’s”

  3. Street address of the principal place of business

  4. Jurisdiction of formation

  5. EIN

Information that must be reported about each Beneficial Owner and (when applicable) Company Applicant includes:

  1. Full legal name

  2. Date of birth

  3. Residential address (or, in some cases, the business address for a Company Applicant)

  4. ID number from a nonexpired passport, driver’s license, or state identification (and a copy of the passport/driver’s license/state ID must also be provided)

Company Applicant information only needs to be reported if the business was formed on or after January 1, 2024. 

Individuals and reporting companies can request a FinCEN Identifier (FinCEN ID) to use in place of supplying detailed information on the report. A FinCEN ID is a unique number assigned by FinCEN which is obtained by submitting the same information as is required of a beneficial owner or reporting company. A FinCEN ID may be useful to individuals that prefer to send their personal information directly to FinCEN rather through a reporting company, or to individuals that may be required to supply information as a beneficial owner or company applicant of several reporting companies.

 

WHEN DO BUSINESSES NEED TO REPORT THIS INFORMATION?

Each Reporting Company must comply with the following deadlines:

  • Formed before January 1, 2024:

    • Must file its initial report with FinCEN within one (1) year (before January 1, 2025)

  • Formed between January 1, 2024 and January 1, 2025:

    • Must file its initial report with FinCEN within ninety (90) days following the company’s formation.

  • Formed after January 1, 2025:

    • Must file its initial report with FinCEN within thirty (30) days following the company’s formation

 

HOW DO BUSINESSES REPORT THIS INFORMATION?

Businesses can report this information using the online form in FinCEN’s website: https://boiefiling.fincen.gov/ 

 

WHAT HAPPENS IF A BUSINESS DOES NOT REPORT THIS INFORMATION TO FINCEN?

The willful failure by a Reporting Company, its senior officers, and/or a Beneficial Owner to comply with the CTA’s requirements and timely provide accurate information to FinCEN can result in:

  • Civil Penalties

    • Fine of $500 per day that a violation continues, up to a maximum of $10,000

  • Criminal prosecution

    • Fine of up to $10,000 AND/ OR

    • Imprisonment of up to 2 years

It is therefore very important that all small businesses take these reporting requirements seriously and ensure that they are and remain in compliance.

 

WHERE CAN I FIND MORE INFORMATION ABOUT THE CTA?

This Client Alert contains only a basic overview of the CTA and its reporting requirements. More detailed information on the CTA and compliance can be found at the following links:

 

Please note that our firm will not be in a position to undertake the actual preparation and filing of FinCEN reports on behalf of clients.

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