The Corporate Transparency Act (CTA) becomes effective on January 1, 2024. In an effort to reduce money laundering, the CTA requires “reporting companies” to disclose information about their “beneficial owners” to the US Department of Treasury Financial Crimes Enforcement Network (FinCEN). FinCEN will maintain a national beneficial ownership registry.
A “reporting company” includes all entities formed by filing a document with a secretary of state or tribal equivalent. Nearly all entities, such as corporations and LLCs, will be considered to be a reporting company, and therefore will be required to disclose information about their beneficial owners.
Twenty-three exemptions would excuse an entity from following the CTA’s reporting requirements, including an exemption for large operating companies. To qualify for this exemption, an entity must employ more than 20 full-time, US-based employees, have an operating presence at a physical, US-based office where business is regularly conducted; and demonstrate over $5 million in gross sales or receipts on the federal income tax return filed the previous year.
CTA defines a “beneficial owner” as someone who either directly or indirectly owns or controls at least 25% of the entity or exercises substantial control over the entity. An individual exercises “substantial control” over an entity when they serve as or perform the duties of an officer (such as president, secretary, treasurer, CEO, CFO, etc.), can appoint or remove any officer, or makes important decisions for the entity.
Reporting companies report specific must report beneficial ownership information (BOI) to FinCEN, including the person’s full name, date of birth, residential address, and identification number from a passport, driver’s license, state ID, or similar form of identification. They must also disclose the name of the entity and any names under which the entity conducts business, its principal place of business, its state of formation, and its taxpayer identification number (such as an EIN). Reporting companies must also report any changes to the information shared with FinCEN within 90 days of the change.
Reporting companies formed before January 1, 2024, must file their report with FinCEN no later than January 1, 2025. Those formed between January 1, 2024, and January 1, 2025, must file their reports within 90 days of formation, and reporting companies formed after January 1, 2025, must file their reports within 30 days of formation.
Anyone who willfully violates the CTA may face civil and criminal penalties, including fines between $500 and $10,000 per day, as well as up to two years of prison time.
Businesses should take the following next steps to prepare for the CTA: determine which entities may be exempt from the reporting requirements; determine the beneficial owner(s) of each reporting company; collect the BOI that will be reported; task someone with CTA compliance; and promulgate internal policies and procedures to collect and report BOI and any changes to BOI.
Please contact Marcus & Boxerman at (312) 216-2720 or firm@marcusboxerman.com with questions about the Corporate Transparency Act or for guidance as to how these updates affect your business.