As of January 1, 2024, a significant change has impacted American businesses with the implementation of the federal Corporate Transparency Act (CTA). This law requires many businesses to disclose information about their beneficial owners, individuals who ultimately control or own 25% or more of the company’s interest.
Who Needs to Comply?
This law applies to a wide range of businesses operating in the U.S., including:
- Corporations
- Limited Liability Companies (LLCs)
- Limited Partnerships
- Business Trusts
- Statutory Trusts
What Information Needs to be Disclosed?
For each beneficial owner, you must report:
- Full Name
- Date of Birth
- Residential Address
- Driver’s License Number or Passport Number
Additionally, depending on specific circumstances, information about individuals involved in forming the company may also be required.
Key Deadlines
- Existing Businesses (created prior to January 1, 2024): Submit your initial report by January 1, 2025.
- New Businesses:
- Formed/registered after January 1, 2024: Report within 90 days of receiving notice of formation.
- Formed/registered on or after January 1, 2025: Report within 30 days of receiving notice of formation.
Exceptions to CTA Applicability
It’s important to note that certain entities are exempt from the CTA’s reporting requirements. These include:
- Public companies: Companies already registered with the Securities and Exchange Commission (SEC).
- Banks and credit unions: Federally insured financial institutions.
- Investment companies and advisors: Entities registered with the SEC under the Investment Company Act or the Investment Advisers Act.
- Insurance companies: Licensed insurance companies and producers.
- Tax-exempt entities: Organizations exempt from federal income tax under Section 501(c) of the Internal Revenue Code.
- Sole proprietorships and general partnerships: Businesses without a separate legal existence from their owners (so not an “entity” by the regular definition, but the reference is still appropriate).
- Large operating companies: Entities that meet all three of the following criteria: (i) Employ more than 20 full-time employees in the United States; (ii) Have a physical office within the United States; and (iii) Have filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales. I find this last one rather odd in federal legislation because typically federal legislation will apply to larger companies and exempt smaller. Perhaps in this instance, that would go against the intent of the law.
- Inactive entities: Entities that meet all of the following criteria: (i) Existed on or before January 1, 2020; (ii) Are not engaged in active business; (iii) Are not owned by a “foreign person,” directly or indirectly, wholly or partially; (iv) Have not experienced any change in ownership in the preceding 12-month period; (v) Have not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12-month period; and (vi) Do not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.
Where to Report
Reports are filed electronically through the Financial Crimes Enforcement Network (FinCEN) website.
Beneficial Ownership Information Reporting | FinCEN.gov
Many companies are required to report information to FinCEN about the individuals who ultimately own or control them. FinCEN began accepting reports on January 1, 2024. Learn more about reporting deadlines.
www.fincen.gov
Important Notes
- Be cautious of phishing scams: Do not respond to unsolicited requests for beneficial ownership information.
- This blog post serves as general information and is not a substitute for legal advice.
- For specific legal guidance: Consult with an attorney to ensure compliance with the CTA.