PERSONAL ATTENTION.
PROMPT LEGAL SOLUTIONS.

Important Notice Regarding the Corporate Transparency Act

The Corporate Transparency Act (“CTA”), which became law as part of the National Defense Authorization Act in 2021, introduces new federal reporting requirements for certain business entities. The purpose of the CTA is to enhance corporate transparency and combat illicit financial activities by requiring companies to report certain information about their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”).

We want to ensure that you are aware of the CTA and its potential implications for your business. Although not an exhaustive description of every component of the CTA, below are a few highlights we call to your attention:

Reporting Companies: There are two types of entities that are considered “reporting companies,” requiring the entities to file beneficial owner reports, unless exempt:

  1. Domestic Reporting Companies, which include corporations, limited liability companies, and other entities formed by the filing of a document with a secretary of state or similar office in the United States; and
  2. Foreign Reporting Companies, which include companies formed under the laws of a foreign country that have registered to do business in the United States by the filing of a document with the secretary of state or similar office.

Beneficial Owners: Reporting companies are required to report information about their “beneficial owners.” These are individuals who, directly or indirectly, own 25.0% or more of the equity interests of the reporting company. In addition, individuals who exercise “substantial control” over the reporting company are also deemed to be beneficial owners. For example, an individual who is a senior officer (such as a business President, CEO, CFO, COO, general counsel, or similar officer) is considered to have “substantial control,” and therefore, would be considered a beneficial owner.

Company Applicants: In addition to reporting beneficial owners, a reporting company formed on or after January 1, 2024, must also report its “company applicants,” which includes the individual who files the documents creating the entity with the applicable secretary of state or similar government office, as well as, if applicable, the individual that directs the individual to do so.

A reporting company is required to report the following information about the entity.

  1. Legal name of the reporting company;
  2. Any trade names;
  3. Current street address of its principal place of business; F
  4. Jurisdiction of formation or registration; and
  5. Taxpayer Identification Number (TIN).

In addition, the reporting company will have to report, with respect to each beneficial owner, the following information:

  1. Name;
  2. Date of birth;
  3. Residential address; and
  4. Identifying number from a government issued ID (such as a passport or U.S. driver’s license). The reporting company will also need to provide an image of the non-expired identification document used.

For entities formed on or after January 1, 2024, the reporting company will have to report, with respect to the company applicant(s), the following information:

  1. Name;
  2. Date of birth;
  3. Address; and
  4. Identifying number from a government issued ID (such as a passport or U.S. driver’s license). The reporting company will also need to provide an image of the non-expired identification document used.

Exemptions: There are twenty-three (23) types of entities in total that are exempt from the CTA reporting requirements. Some of the exempt entities include nonprofit organizations, banks, credit unions, and publicly traded companies. In addition, an entity that meets six (6) specific criteria to be a “large operating company” including employing more than twenty (20) full-time employees in the United States, reporting more than $5 million in United States based gross receipts or sales for the prior year, and maintaining an operating presence at a physical office within the United States.

Access to Information: Federal, state, local, and tribal officials may obtain beneficial ownership information for law enforcement, intelligence, and national security purposes.

Effective Date: The CTA reporting requirements become effective January 1, 2024.

Filing Deadlines: Reporting companies formed on or after January 1, 2024, must file within ninety (90) days (reduced to thirty (30) days for entities formed on or after January 1, 2025) of the date of the filing that created the entity. Reporting companies in existence prior to January 1, 2024, must file prior to January 1, 2025. Once the initial report is filed, if the information submitted concerning the reporting company or its beneficial owners changes, the company must file an updated report within thirty (30) days of the change.

Penalties: If a reporting company fails to file and/or an individual willfully violates reporting requirements, significant penalties may be imposed. These include civil penalties of up to $500 for each day that the violation continues as well as criminal penalties of up to two (2) years imprisonment and a fine of up to $10,000.

Implementation: FinCEN is scheduled to introduce an online system no sooner than January 1, 2024, that will allow reporting companies to submit their respective reports. No reports will be accepted prior to January 1, 2024. FinCEN is also allowing individuals to secure a unique identification number that the individual can provide to the reporting company in lieu of its personal identifiable information. The reporting company will then be able to report the number in lieu of the address, government issued ID, etc., of the individual.

We recommend that you review your corporate structure and ensure compliance with the CTA and reporting requirements to FinCEN. You should take steps to identify the person within your organization who will be responsible for compiling the information needed to complete and eventually file the beneficial ownership form.

Our office is available to answer questions and address concerns regarding the CTA and reporting requirements. Please feel free to reach out by calling (605) 335-4950.