Corporate Transparency Act

Haven’t heard of it? You are not alone! This Law has not been widely publicized to those who will ultimately be affected by it because the regulations have not been finalized yet.

however, since companies will be required to report starting january 1, 2024, let’s get into the details of what this act is and how it will affect business owners!

What is the Corporate Transparency Act?

The Corporate Transparency Act (“CTA”) was created by the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) with the goal to strengthen the anti-money laundering regime by increasing transparency, primarily by requiring numerous business entities to report their beneficial owners for the first time.

Who Is Required to Report?

The final rule describes two types of reporting companies,: a domestic reporting company and a foreign reporting company.

A domestic reporting company is a corporation, LLC or other entity that is created by the filing of a document with the Secretary of State or similar office. A foreign reporting company is a corporation, LLC or other entity created in a foreign country that is registered to do business in the United States by filing a document with the Secretary of State or similar office.

While the final rule does not define other entity types, FinCEN and its comments accompanying the final rule said that it expects other entity types to include limited liability partnerships, limited liability, limited partnerships, business trusts, and most limited partnerships.

The CTA exempts 23 categories of entities from the definition of “reporting company”. Exempted entities include the following, which each have detailed definitions:

• Large operating companies — companies with 20 or more full-time U.S. employees, more than $5 million in U.S.-sourced revenue, and a physical operating presence in the U.S.;

• Issuers registered with the Securities and Exchange Commission;

• Banks, bank holding companies, savings and loan holding companies, credit unions, financial market utility entities, and money services businesses registered with FinCEN;

• Registered Commodity Exchange Act entities, registered investment companies or investment advisers, broker-dealers, and registered venture capital fund advisers;

• Insurance companies or state-licensed insurance producers;

• Accounting firms;

• Public utilities;

• Certain pooled investment vehicles;

• Tax-exempt entities or certain entities that assist tax-exempt entities; and

• Inactive companies.

The Rule also provides a reporting exemption for subsidiaries that are controlled or wholly owned, directly or indirectly, by one or more exempt entities. This exemption does not extend to subsidiaries of money services business, pooled investment vehicles, or entities assisting a tax-exempt entity.

Who Are Considered Beneficial Owners?

Beneficial owners are defined as “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such report company."

An individual can exercise substantial control over a reporting company if they serve as a senior officer in the reporting company, have authority over the appointment or removal of senior officers or a majority of the board, have “substantial influence over important decisions” of the reporting company, or have any other form of substantial control over a reporting company. The broad definition may include third parties.

When Do You Have to Report?

All domestic and foreign reporting companies created or registered on or after January 1, 2024, have to file their initial report within 30 calendar days of receiving notice of their creation or registration.

Any reporting company existing or registered before January 1, 2024, must file its initial report with FinCEN by January 1, 2025.

What Information Must Be Included In the Report?

Any trade names or DBAs, the street address of the company’s principal place of business, its jurisdiction of formation, the jurisdiction where first registered to do business in the case of a foreign company, and its IRS Taxpayer Identification Number.

For beneficial owners, the following information must be provided: the individual's full legal name, date of birth, current address, a unique identifying number from either an unexpired passport, state identification document, or driver's license, and an image of that document.

NOTE: Reporting companies created or registered after January 1, 2024, must provide information about their company applicants. A company applicant is any individual who files the document that creates a company, as well as any individual who is primarily responsible for directing or controlling the filing. The information required is the same information as a beneficial owner.

FinCEN is in the process of creating the forms by which reporting companies will report beneficial ownership information to FinCEN. FinCEN is expected to publish the proposed reporting forms in the Federal Register well in advance of January 1, 2024, for public comment.

Make sure to check back for more information as we get closer to the reporting date!