The Corporate Transparency Act (CTA), which goes into effect in January 2024, may have an impact on your small business. This article aims to help explain what the CTA is, how it might affect certain businesses and what steps you can take to remain compliant.
What is the Corporate Transparency Act?
Effective January 1, 2024, the Corporate Transparency Act (CTA) established new federal reporting requirements that work to enhance transparency in small businesses and their ownership to combat money laundering, tax fraud, and other illicit activities in the U.S. market.
The CTA requires certain businesses to share information about “beneficial owners” with the Financial Crimes Enforcement Network (FinCEN). The registration of beneficial ownership will serve as a centralized database containing up-to-date information on the individuals behind each applicable entity (a Reporting Company).
The CTA will impact a significant number of businesses throughout the U.S., so it is critical that owners are aware of the Act’s implications and that they seek legal counsel to determine if their business falls within the CTA reporting requirements.
Does the CTA Apply to my Business?
Entities that are required to file under the CTA include all corporations, limited liability companies, and other business entities that were created by the filing with the Secretary of State or a similar office in the applicable jurisdiction, or, for foreign companies, a registration to conduct business in the U.S.
The CTA offers several exemptions, namely for large domestic companies, including publicly traded companies, companies that are in highly regulated industries (ex: insurance, banking, financial brokerage, etc.), and inactive entities. If you are unsure of whether your business is subject to the CTA, please be sure to seek guidance from a qualified attorney.
Who is a “Beneficial Owner” under the CTA?
An individual (or entity) is considered a “Beneficial Owner” under the CTA if that individual either:
- Exercises “substantial control” over the Reporting Company or can make important decisions for a Reporting Company; or
- Owns twenty-five percent (25%) or more of ownership interests of a Reporting Company.
What Information Needs to be Reported?
Reporting Companies must provide information about the entity and each Beneficial Owner. This includes legal and trade names, principal addresses, jurisdiction of formation, and taxpayer identification numbers. Additionally, Beneficial Owners need to provide their legal name, current address, date of birth, and an identification document with a supporting image.
When Do I Need to File?
All Reporting Companies are required to file an initial report with FinCEN based on when the entity was created:
- Reporting Companies that were in existence as of January 1, 2024, must file an initial report by December 31, 2024.
- Reporting Companies created after January 1, 2024, must file an initial report thirty (30) days after receiving actual or public notice that their entity has been created, or upon receipt from the secretary of state or similar office that the company was created or registered, whichever is earlier.
In addition to filing an initial report, if there is any change to the required information about the Reporting Company or its Beneficial Owners, an updated report must be filed within thirty (30) days following a change to Beneficial Owner Information such as a sale of the business, merger, assignment or death, or within thirty (30) days upon becoming aware or having reason to know of inaccurate information previously filed.
What Happens if I Fail to File?
Failure to timely file with FinCEN may result in steep penalties, including fines of up to $10,000 and imprisonment for up to two (2) years. As a result, it is essential for business owners to stay informed of CTA requirements and take action accordingly.
Need Assistance? We are Here to Help
Have any questions about the CTA or need assistance in ensuring that your business is in compliance with its requirements? Please contact Liff, Walsh & Simmons to ensure accurate and complete reporting. We can assist you in interpreting the requirements and how they apply to your business, guiding you through the filing process, and keeping you informed of any updates in the law and how it is applied.
Jonathan W. McGowan, Partner, Liff, Walsh & Simmons
Kathleen Millrood, Associate Attorney, Liff, Walsh & Simmons