The Corporate Transparency Act (“CTA”) is a federal law aimed at preventing money laundering, tax fraud, and other illicit activity, such as financing for terrorist organizations. A major component of the CTA will soon be implemented that will affect numerous business owners. Effective January 1, 2024, many companies will be required to submit information regarding the “beneficial ownership” of the business. This change will impact entities created by filing a registration with a secretary of state or other similar office, including most LLCs, corporations, and similar businesses.
Certain companies, such as tax-exempt entities, banks, companies subject to SEC reporting, and large companies that employ more than 20 full-time employees, have a physical office in the US, and have more than $5 million in gross sales reported on their federal income tax returns, will not be affected by this change. However, numerous companies, especially small businesses, will be subject to the new reporting requirements.
Deadline to Report
If the company is created after January 1, 2024, submission of the report containing beneficial ownership of the company is due within 30 calendar days of the date the entity is created.
If the company was created before January 1, 2024, the report containing beneficial ownership of the company is due by January 1, 2025.
If the beneficial ownership of a company changes on or after January 1, 2024, a report containing updated beneficial ownership of the company is due within 30 calendar days of the date the change in beneficial ownership occurred.
Type of Information to be Reported
The business must report information such as the name of the entity, the company address, the jurisdiction in which it was formed, its beneficial ownership, and information about the company applicants (the individuals who submitted the filings to create the entity). This information will be submitted to the Financial Crimes Enforcement Network (FinCEN), a federal agency. The information will not be publicly available but may be accessed by various law enforcement agencies under certain circumstances.
Definition of Beneficial Owners
Beneficial owners are generally defined as anyone who owns 25% or more of a company OR anyone who has “significant responsibility to control, manage, or direct” the affairs of the company.
The beneficial ownership information required to be reported will include the legal name, date of birth, address, and a unique identifying number from certain identification (such as a passport or driver’s license number), among other pieces of information.
How to Report
FinCEN has issued guidance to implement the reporting requirements of the CTA and will be tasked with collecting and storing the reports submitted. The reports containing beneficial ownership and company applicant information will need to be submitted by filing the required form with FinCEN. The filing system and form are not yet ready but are scheduled to be created by FinCEN before the January 1, 2024 effective date.
The far-reaching reporting requirements instituted by the CTA will soon be affecting many small business owners. Failure to comply with the new guidelines could include substantial fines or even jail time. Business owners and those who exercise control over businesses must determine whether their companies are subject to these new reporting requirements to ensure that such information is submitted within the applicable deadline.