Authors: Dave Kopilak, Shareholder; Kaci Hohmann, Attorney
Beginning January 1, 2024, a new federal law known as the Corporate Transparency Act (“CTA”) will take effect. The CTA will require certain legal entities to disclose information about the entity and their owners and controllers to the United States Financial Crimes Enforcement Network (“FinCEN”).
Which companies are required to comply with the CTA?
“Reporting Companies” are subject to the CTA. A “reporting company” is any corporation, limited liability company, or similar entity that is created by filing a document with a Secretary of State or similar office or registered to do business in the United States.
Although certain specific entities are exempt from reporting, in general most business entities will need to comply with the CTA. Common exemptions include 501(c) tax-exempt non-profit entities and “large operating companies” with more than 20 full-time employees and gross receipts or sales in excess of $5,000,000.
What information must be reported?
Reporting companies are required to report the following information:
- the entity’s legal name;
- trade names;
- business address;
- jurisdiction of formation; and
- IRS taxpayer or employer identification number.
Reporting companies are not required to report the business activities or financial information of the entity.
Reporting companies must also disclose information about their “beneficial owners”. A “beneficial owner” is any individual who, directly or indirectly, exercises substantial control over, or owns 25% or more of the ownership interests of the reporting company.
If the legal entity was formed on or after January 1, 2024, the entity will need to report information about “company applicants.” A “company applicant” is anyone who files an application to form or register the reporting company entity.
Each individual who is a beneficial owner or company applicant is required to report the following information:
- individual’s name;
- date of birth;
- address; and
- an image of a photo identification document, such as a passport or driver’s license.
When is reporting required?
Reporting companies created before January 1, 2024 will have until January 1, 2025 to file their initial beneficial ownership information report.
Reporting companies formed on or after January 1, 2024 will have 90 days to file their initial beneficial ownership information report until January 1, 2025 at which time newly formed reporting companies will have only 30 days to file their initial beneficial ownership information report.
Reporting companies must file a supplemental report within 30 days after any changes to the originally disclosed beneficial ownership information occur.
Where will reports be filed?
FinCEN is creating an online reporting portal where reporting information can be securely uploaded. The portal is expected to be operational on January 1, 2024.
Are there penalties for failing to file reports?
Failure to report beneficial ownership information may result in civil or criminal penalties, including civil penalties up to $500 for each day a violation continues, or criminal penalties including imprisonment of up to 2 years and/or a fine of up to $10,000.
What steps should I take to comply with the CTA?
If you intend to form or register an entity on or after January 1, 2024, the entity will have a 90-day reporting window. Companies should consult with their lawyers to determine whether the CTA applies to them. If the entity is subject to the CTA, the entity and their lawyers will need to identify the “company applicant(s)” and “beneficial owner(s)” and gather all necessary information to comply with the reporting requirements before the expiration of the 90-day window.
If your entity was formed on or before December 31, 2023, the entity will have until January 1, 2025 to comply with the CTA. During calendar year 2024, the entity should consult with its lawyers to determine whether the CTA applies and identify the beneficial owners of the entity.
Emerge’s business attorneys can assist you with determining whether your entity qualifies as a reporting company and who is required to report information to FinCEN. Contact our Business Practice Group today for more information.
