Beginning January 1, 2024, the Corporate Transparency Act (CTA) will require millions of businesses to report information on itself, its owners, and others with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury. If you are the owner of a business such as an LLC or corporation, you will likely have reporting requirements. If you do not comply, the penalties can be quite severe.
Who Must Report
Businesses obligated to report under the CTA include corporations, limited liability companies, and other entities registered with a secretary of state or a similar office. Sole proprietorships and general partnerships are exempt. If a company does not fall within very narrow exemptions, it is considered a “reporting company” and must submit the required reports within a specific timeline.
What Information Must Be Reported
Reporting companies must provide information about their “beneficial owners” and “company applicants.”
Beneficial owners include those persons or entities who have a 25% or more ownership in the company or who exercise substantial control over company operations (i.e., have influence over decision making process, financial transactions, or who can control the direction of the company). In general, a broad range of individuals may be considered beneficial owners who have an obligation to report, such as shareholders, CEOs, and general management. Various exemptions may apply, but again, those are quite narrow and should be discussed with legal counsel on a case-by-case basis.
A company applicant may include a person or entity who files the document creating or registering a reporting company and those who are primarily responsible for directing or controlling the filing. In some cases, there may be multiple company applicants.
What Information Must Be Reported
The required information from beneficial owners and company applicants includes full legal names, date of birth, addresses, and identification numbers from acceptable documents such driver’s licenses or passports. The company itself must also provide its legal name and any trade name, address, formation jurisdiction, and taxpayer identification number.
When To Report & Penalties for Non-Compliance
For companies formed before January 1, 2024, compliance must occur within one year, or no later than January 1, 2025. For those entities formed between January 1, 2024 and January 1, 2025, the initial reports must be filed within 90 days of formation. Penalties for non-compliance include a $500 per day civil penalty, fines up to $10,000, and imprisonment for up to two years.
Conclusion
The Corporate Transparency Act brings significant changes for a wide range of businesses and impacts a substantial number of individuals. If you suspect that your business may be subject to the CTA’s reporting requirements, it is crucial to seek guidance from a legal professional. Our attorneys can provide personalized advice and assistance, ensuring that your business complies with the new regulations and avoids potential penalties.