New Federal Filing Requirement for Small Businesses

Effective as of January 1, 2024, millions of U.S. companies are now required to file an informational report with the U.S. Department of the Treasury. If you fail to comply with the reporting requirements, you can face stiff penalties. Please read the following guide to The Corporate Transparency Act to help better understand what is required and prepare your company to stay compliant.

What is the Corporate Transparency Act (the “CTA”)?

The CTA is a component of the Anti-Money Laundering Act of 2020. It was enacted to prevent money laundering, terrorist financing, and other illicit activities. By increasing the information reported on business entities, this new law aims to prevent the exploitation of U.S. corporations and LLCs for criminal gain and assist law enforcement in detecting criminal activity. The CTA took effect on January 1, 2024. All applicable entities have a limited timeframe to file information with the Financial Crimes Enforcement Network (“FinCEN”), a division of the U.S. Department of the Treasury. The Corporate Transparency Act requires companies, beneficial owners and business applicants to file information with the U.S. Department of the Treasury.

Who is Required to Report?

All “reporting companies” must file information on beneficial owners and company applicants. A “reporting company” is either a domestic or foreign privately held company. A domestic reporting company is an entity that is created by the filing of a document with a secretary of state or similar office under the law of a state. A foreign reporting company is an entity formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a state. Publicly traded companies already have sufficient reporting requirements and are therefore not included under the CTA. However, if you own a closely held LLC or corporation, chances are you are a reporting company.

Who is a "Beneficial Owner"?

A “beneficial owner” is an individual who, directly or indirectly, either:

1. exercises substantial control over a reporting company, or
2. owns or controls at least 25% of the ownership interests of a reporting company.

Substantial control can be exercised by an individual serving as a senior officer, who has authority to appoint or remove a senior officer, or who can direct or make substantial decisions over important matters.

Beneficial ownership includes direct and indirect interests and includes joint ownership or any undivided interests. If an entity is owned by a trust, the beneficial owner could be the grantor or settlor of the trust who has a right to revoke the trust or withdraw assets, the Trustee or person holding authority to dispose of trust assets, a sole beneficiary who is the recipient of income and principal, or a beneficiary who has the right to demand distribution or withdraw substantially all assets from the trust. There are exclusions to the definition of beneficial owner, such as minor children, non-senior employees, and contingent beneficiaries of a trust.

Company Applicant

A company applicant is any individual who files an application to form or register an entity under the laws of a state, including the person who directed the filing. For example, if a family member files the document on behalf of a relative, both the family member and the relative are considered company applicants.

If Robbins Law Firm, PLLC registered your business for you, then we are your company applicants. Please contact us to obtain our FinCEN Identifying Numbers for reporting purposes if your entity was registered after 1/1/2024.

What are the Reporting Requirements?

Reporting companies must submit the following information to FinCEN:

• Identifying information for the reporting company:
  • Legal name, trade name and “DBA”
  • Address for principal place of business
  • Jurisdiction in which it was formed or first registered
  • Tax ID number
• Identifying information on the beneficial owners and company applicants:
  
  • Legal name
  • Date of birth
  • Current Address
  • ID number (passport, driver’s license, etc.)
  • Image of document with ID
• FinCEN Identifier, which is a unique identification number, useful for repeat files.

When are Report Due?

If your company was already in existence prior to January 1, 2024, your initial report is due by January 1, 2025.

If your company was created on or after January 1, 2024, your initial report is due 90 calendar days after the entity is created or registered.

For reporting companies created or registered on or after January 1, 2025, the initial report is due 30 calendar days after the entity is created or registered.

Following the initial report, if there are any corrections or changes of ownership, a new report must be filed within 30 days of the correction or change. Otherwise, there is no ongoing filing requirement. Some changes that would require a new filing include a change of address, change in senior management, or when an owner has died and the business interests pass on to new beneficiaries.

What are the Penalties?

Failing to report the information required by the CTA can result in stiff penalties. These penalties include civil penalties of up to $500 per day as the violation continues, and they also include criminal penalties in the form of fines up to $10,000, imprisonment of up to two years, or both.

Steps to Take Now

If you are a business owner, you must determine your reporting requirements and file any required report. To good news is that filing your report is very simple and can be done online in just a few minutes. You can find additional information about your FinCEN reporting requirements and file your report here:
https://www.fincen.gov/boi.

If you have questions or need assistance filing your report, please contact our office by calling (704) 892-4098 or emailing us at:
contact@robbinslawfirm.com.