Beginning on January 1, 2024, certain entities registered to do business in the United States will need to start complying with the reporting requirements under the Corporate Transparency Act (CTA). The CTA was implemented to try and combat the use of shell companies to facilitate money laundering, tax evasion and other illicit activities, the CTA requires companies to report certain personal information about their beneficial owners to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). There is a rough estimation that 32.6 million companies will be subject to these reporting requirements and around 5 million will be subject each following year.
Impact to Entities Formed Before January 1, 2024
Any eligible companies existing before January 1, 2024 will have until January 1, 2025 to report their beneficial owner information.
We will reach out to all current clients after January 1, 2024 to discuss your obligations under the CTA and how we can assist you.
Impact to Entities Formed After January 1, 2024
Any companies formed after January 1, 2024 will have 30 days to report such information. For all eligible companies, any changes in ownership would need to be reported in 30 days of such change.
Since any companies formed after January 1, 2024 will need to complete this filing, we will add this service to our flat-rate formation packages, but it will cause an increase in price for those packages.
Required Information in Filing
The information needing to be submitted is the following:
Company name, any d/b/a, current street address in the U.S., state of formation or registration, and EIN
Each beneficial owner (as defined below): Name, date of birth, residential address, and ID number (like passport number, Driver’s license number, government issued ID, or foreign passport) Federal, state, local or tribal officials will have access to the information reported along with specific foreign officials who submit a request through a U.S. Government agency if it is related to national security, intelligence and law enforcement. The information reported will be stored in a secure nonpublic database.
TLDR*: Company Name, any DBAs, Company Address, EIN and Name, date of birth, home address, Driver's license or Passport number of any owners, board members, and senior officers
For reference, an eligible company under the CTA is either a domestic or foreign corporation, limited liability company or similar entity that is either formed in an U.S. state or is registered to do business in an U.S. state and does not meet the exemptions under the CTA.
The types of companies/entities that are exempt from reporting under the CTA are:
Reporting Securities issuers/Public Companies- An issuer of securities registered under Section 12 of the Securities Exchange Act of 1934 or require to file supplementary and periodic information under Section 15(d) of the Securities Exchange Act of 1934.
Depository Institution Holding Companies
Money Service Businesses
Brokers/Dealers in Securities
Securities Exchanges or Clearing Agencies
Other Securities Exchange Act of 1934 Registered Entities
Registered Investment Companies or Investment Advisers
Venture Capital Fund Advisers
State-Licensed Insurance Producers
Commodity Exchange Act Registered Entities
Financial Market Utilities
Pooled Investment Vehicles
Entities Assisting a Tax-Exempt Entity
Large Operating Companies-employs more than 20 full time employees, operating physical presence in the U.S. and reported more than $5 million in gross receipts/sales from U.S. only sources in previous year.
Subsidiaries of Certain Exempt Entities- entity whose ownership interests are controlled or wholly owned by any above exempt entity except money service business, pooled investment vehicles, entities assisting a tax-exempt entity or inactive entities.
TLDR*: Almost every LLC and corporation with less than 20 employees in the U.S. must file a report
A beneficial owner under the CTA is an owner that directly or indirectly exercises substantial control over the reporting company or who owns or controls at least 25% of the reporting company’s ownership interests.
Substantial control is demonstrated in four different ways:
Individual is senior officer (e.g., President, CEO, CFO, etc.);
Individual has authority to appoint or remove certain officers or a majority of directors;
Individual is an important decision maker related to the activities of the business, business’ finances or overall structure of the business; or
Individual has any other form of substantial control over company.
Ownership interest includes shares, voting rights, profit interest, convertible interests, and options. This means that even if an individual is not a voting owner of a company, if they have at least 25% in one of the above options, then their information will need to be reported.
If a business fails to comply with this requirement, the CTA provides both civil and criminal penalties which include fines up to $10,000 and the possibility of two years in prison.
If you have questions about whether your organization or company is required to meet with this requirement under the CTA or any additional questions about this new reporting requirement, please reach out to our office and set up a time to meet with one of our attorneys.
*TLDR - Too Long Didn't Read