In 2021, Congress enacted the Corporate Transparency Act (“CTA”) as an effort by the federal government to combat money laundering, tax fraud, and other illegal activity by bad actors. The core of the CTA is reporting requirements imposed on substantially every small business organized or registered to conduct business in the United States. Reporting companies will be required to submit identifying information regarding their beneficial owners and individuals who participate in the formation and domestic registration of those businesses (“Company Applicants”).
Who needs to comply?
Most small businesses, including corporations, LLCs, limited partnerships, foreign companies and similar entities formed or registered in the US, are considered reporting companies, and must comply with the CTA. However, there are 23 exemptions, including:
- Publicly traded companies.
- Banks, insurance companies, and nonprofits.
- Large operating companies with at least 20 full-time employees, $5 million in annual revenue, and a US physical location.
- Inactive entities formed before January 1, 2020, meeting specific criteria.
Deadlines:
- Existing reporting companies: Initial reports due by January 1, 2025.
- Companies formed in 2024: Reports due within 90 days of formation.
- Companies formed after January 1, 2025: Reports due within 30 days of formation.
What information needs to be reported?
Beginning on January 1, 2024, most companies will have to report information about their:
- (i) Beneficial Owners – The individuals who own or control the company, such as
- directly or indirectly owns or controls 25% or more of the ownership interests of an entity, and/or
- who exercise substantial control over the entity.
- (ii) Company Applicant – The individual(s) who:
- directly files the document that creates or registers the company or
- directs/controls that filing by another person, if more than one person was involved in the filing.
Company applicant information only needs to be reported for entities formed on or after January 1, 2024.
For each beneficial owner or company applicant (for new entities), companies must report the individual’s:
- Full legal name
- Date of birth
- Current residential address
- Government issued identification number and an image of the identification (state driver’s license, US passport, etc.)
Alternatively, individuals can request a special ID from FinCEN to be used in lieu or their personal information in filings, so that they do not have to provide reporting companies with their personal information. However, their personal information will still need to be submitted to FinCEN to obtain the special ID.
Each reporting company must report its:
- Legal name and any trade names
- Address of its principal place of business
- Jurisdiction of formation/registration
- Tax ID Number
Additional reporting requirements:
- Companies must update their reports within 30 days of certain changes, such as ownership, address, or identification changes.
- There is a 90-day safe harbor for correcting inaccurate reports.
Penalties for non-compliance:
Civil and criminal penalties may apply for entities or individuals who:
- Willfully provide false information to FinCEN;
- Willfully fail to report required information; or
- Fail to correct or update previously reported information.
Next steps:
- Small businesses should consult with legal counsel to determine their reporting requirements.
- Filings must be made electronically through a form that will be available on January 1, 2024.
Visit the below links to stay up to date on the latest guidance and resources from FinCEN:
- FinCEN website: https://www.fincen.gov/
- CTA Compliance Guide: https://www.fincen.gov/boi/small-entity-compliance-guide
This information is intended as a general overview and should not be substituted for professional legal advice. If you have any further questions or require detailed information on specific aspects, it’s best to consult the official CTA resources or seek professional legal guidance. Our point of contact for this matter is Manning Fulton attorney Angela Baldwin, and she would be happy to provide additional information.
