Corporate Transparency Act

New Corporate Transparency Act Creates Significant Regulatory Reporting Requirements for Most Small Businesses

Effective January 1, 2024, the Corporate Transparency Act (“CTA”) is set to implement a new regulatory and reporting system for corporations, limited liability companies (LLCs), and other business entities. Under the CTA, many legal entities will be required to report to the federal government’s Financial Crimes Enforcement Network (FinCEN) identifying information about the individuals who directly or indirectly own or control the reporting entity. The CTA creates a new and significant regulatory obligation for reporting entities from start-up and continuing on for the life of the business.

Who Does the CTA Apply To?

The CTA casts a wide net, encompassing a broad spectrum of entities operating within the United States. Although some entities will be exempt ­– most notably banks, insurance companies, nonprofit entities, large operating companies (defined as entities with (i) over 20 full-time U.S. employees, (ii) more than $5 million of revenue from U.S. sources, and (iii) an operating presence at a physical location in the U.S.), and entities that are registered with the Securities and Exchange Commission – the CTA applies to many businesses, regardless of structure.

What Does the CTA Require?

1. Disclosure of Beneficial Ownership

The most significant aspect of the CTA is the mandate for covered entities to disclose their beneficial ownership information to FinCEN by filing a beneficial ownership information (BOI) report.

2. Defining Beneficial Owners

The CTA defines “beneficial owners” as individuals with at least a 25% ownership interest or those exercising substantial control over the entity. This includes officers, directors, managers, and anyone with a substantial influence on the company’s operations and decision-making.

3. Reporting Requirements

Via the BOI report filed with FinCEN, a reporting entity is to disclose the names, addresses, dates of birth, and unique identification numbers of the entity’s beneficial owners. The submission must also include details regarding the entity’s ownership structure.

4. Updates and Changes

To ensure the accuracy of the information, reporting entities must promptly update FinCEN about any changes in beneficial ownership. As such, compliance with the CTA is not simply an extra step at business start-up, but is an ongoing obligation.

Reporting Deadline for New Entities

For newly formed entities, compliance with the CTA becomes an integral part of the business formation process. For all reporting entities formed or registered after January 1, 2024, the BOI report must be submitted within 30 days of the notice that the registration of the reporting company is effective. However, FinCEN has proposed extending the initial filing deadline for a BOI report to 90 days for entities created or registered in 2024.

Reporting Deadline for Existing Entities

Existing entities are tasked with a retrospective compliance effort under the CTA. For existing reporting entities formed or registered before January 1, 2024, the BOI report disclosing the beneficial owner information must be filed within one year from that date, or January 1, 2025.

Conclusion

The CTA’s broad definition of “reporting entity” means that many new and existing entities, including a majority of small businesses, will be required to file BOI reports. Because of the severity of the penalties involved with a failure to submit an accurate BOI report, it is important that businesses begin to examine their reporting obligations and gather the requested information.

Meeting the requirements under the CTA is not only a substantial undertaking for millions of reporting entities, but also a substantial undertaking for the federal government. As such, there is ongoing speculation about whether FinCEN will further delay or extend reporting requirement deadlines.

The best approach for businesses is to be proactive and begin collecting the beneficial owner information now.

If you have questions about how the CTA will impact your business or what your reporting requirements will be, contact your FGKS Law attorney. For more information about FGKS Law attorneys and practice areas, please visit www.fgks-law.com.