What is the Corporate Transparency Act?
Starting in 2024, a federal law will require many privately-owned companies to disclose to a federal agency certain basic information about their owners and controlling business members. This is part of the government’s efforts to combat bad actors from laundering money and engaging in illegal activity. Under the Corporate Transparency Act (CTA), business owners should be aware of this new law and prepare for their business for proper filing in 2024.
Who is required to file?
The Corporate Transparency Act requires a broad range of entities to file a report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The federal government defines a “reporting company” as a “corporation, limited liability company, or any other similar entity” that is created by filing with a state’s Secretary of State.
The Corporate Transparency Act exempts 23 types of entities and businesses from having to file a report with FinCEN. Some of these exemptions include publicly traded companies, large operating companies, money services businesses, public accounting firms, and certain types of investment companies. Business owners should consult with an attorney if they believe that their business falls into an exempted category.
What information is required to report?
In addition to providing basic information about the company, a reporting company will have to report information about anyone who is a beneficial owner of the company and who filed the company’s application.
If a reporting company is created or registered on or after January 1, 2024, the reporting company will need to report information about itself, its beneficial owners, and its company applicants. If a reporting company was created or registered before January 1, 2024, the reporting company only needs to provide information about itself and its beneficial owners. The reporting company does not need to provide information about its company applicants.
Who are Beneficial Owners?
In general, a beneficial owner is any individual (1) who directly or indirectly exercises “substantial control” over the reporting company, or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.
Beneficial owners in the eyes of the federal government are often owners of the business and people who have the ability to make key decisions for the company. Some examples of people who exercise “substantial control” includes managers, individuals who can make major expenditures on behalf of the company, and individuals who can exercise control through its voting rights
Who are Company Applicants?
When filing its annual report, a company will have to disclose which employee or agent actually completed the filing process to register the company with their respective state.
There can be up to two individuals who qualify as company applicants:
- the individual who directly files the document that creates, or first registers, the reporting company; and
- the individual that is primarily responsible for directing or controlling the filing of the relevant document.
For example, if an attorney is retained in 2024 to file paperwork to create an LLC and the lawyer instructs a staff person to file online both the lawyer and staff person are “company applicants”
What Personal Information is Required from Beneficial Owners and Company Applicants?
For each individual who is a beneficial owner or a company applicant, a reporting company will have to report:
- The individual’s name, date of birth, and address;
- A unique identifying number from an acceptable identification document; and
- The name of the state or jurisdiction that issued the identification document.
Address: For a beneficial owner, the reporting company must report their residential street address.
When and how should a company file its initial report?
If the company is created and registered before January 1, 2024, they will have to file their initial report by January 1, 2025. Otherwise, a new company created in 2024 onward will have to file its initial report within 30 calendar days of receiving actual or public notice from the state of the company’s secretary of state or similar office that your company was created or registered. By the time filing is required in January 2024, FinCEN will have an online filing portal open.
What if there are changes to or inaccuracies in reported information?
If an informational change occurs after a company files their report, the company will have 30 days to report any changes and update the information. For corrections to reported information, companies will have to report the changes within 30 days from when the company becomes aware of, or has reason to know of, an inaccuracy in a prior report. Business owners should be aware that the CTA contains significant penalties for failing to file a report or providing false information, including monetary fines and even prison time.
If you would like to learn more about preparing your business for the new CTA filing procedures, do not hesitate to contact one of our experienced business attorneys at EPGD Business Law.
