CLIENT ALERT:
Corporate Transparency Act

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Every entrepreneur with a limited liability company or corporation MUST take the time to learn about the Corporate Transparency Act (or CTA).

This new law, which becomes effective in January 2024, aims to enhance corporate transparency and combat financial crimes such as money laundering, terrorist financing, and other illicit activities by making it easier for the government to identify who owns and manages businesses in the United States. The CTA introduces substantial changes that may impact how your business conducts its operations, particularly with respect to reporting requirements and beneficial ownership disclosure.

Importantly, this law applies to all business in the United States regardless of the state of formation. There is no exception for small businesses, and the few exceptions that do apply are only relevant for entities that are already heavily regulated.

So it is very likely that you will need to comply with this new law.

3 Key Points Of The CTA

Identifying Beneficial Owners

Businesses must now disclose their ownership structure to the federal government.

Reporting Requirements

These disclosures must be made in filings with a federal agency known as FINCEN.

Penalties For Non-Compliance

Failure to make the required filings on time can result in harsh penalties.

Let’s look at each of these more closely.

Beneficial Owners: Under the CTA, certain companies are now required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who own or control at least 25% of the company’s equity interest or exercise substantial control over the entity.

There is a narrow list of companies that are exempt from the reporting requirements. Exempt companies include:

  • Publicly traded companies: Companies listed on major U.S. stock exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ, may be exempt from the CTA’s reporting requirements because they already have stringent disclosure requirements under the Securities and Exchange Commission (SEC).
  • Registered investment companies: Entities regulated under the Investment Company Act of 1940, such as mutual funds and exchange-traded funds (ETFs), may also be exempt from the CTA.
  • Certain financial institutions: Banks, credit unions, and similar financial institutions that are already subject to robust anti-money laundering (AML) regulations and reporting requirements may be generally exempt from the CTA.
  • Certain insurance companies: Insurance companies regulated under state law and subject to AML compliance requirements were typically exempt from the CTA.Charitable organizations: Nonprofit organizations that meet specific criteria for tax-exempt status, such as 501(c)(3) organizations may be exempt from the CTA
  • Entities already reporting to FinCEN: Companies that were already required to report beneficial ownership information to FinCEN through other regulations, such as banks and money services businesses, may be  exempt from additional reporting under the CTA.
  • Entities with a sufficient level of public disclosure: Some entities that provide a sufficient level of transparency through public filings or other means may be exempt from certain CTA reporting requirements. The specifics of these exemptions may vary.
If your company is not described in one of the above exemt categories, you will need to comply with the CTA’s reporting requirements.

 

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Reporting Requirements: A reporting company will need to provide:

  1. its legal name,
  2. any trade names or DBAs;
  3. its address;
  4. the state in which it was formed or first registered; and
  5. its Taxpayer Identification Number (TIN) or EIN.

For each beneficial owner, a reporting company will need to provide the individual’s:

  1. legal name;
  2. birthdate; 
  3. address (in most cases, a home address);
  4. an identifying number from a driver’s license, passport, or other approved document, and an image of the document that the number is from. 

A reporting company must also provide information about a “company applicant,” which refers to the person who filed the legal paperwork that created the entity. In the case of a business that was set up by Mitton Law Firm, the company applicant may be Faith Mitton, a paralegal, or a filing service, and the required info about the company applicant will be provided to you so that you can make your reports. All of the information reported to FinCEN will be maintained in a confidential database which can only be accessed by authorized law enforcement agencies and regulated financial institutions.

Reporting Deadlines: Initial reports for entities that were formed before January 1, 2024 are due on January 1, 2025. Initial reports for entities formed after January 1, 2024 are due within 30 days of formation. However, updated filings must be made whenever there are changes to any information initially reported to FinCEN or when an error is discovered in a FinCEN filing. These updated reports must be filed within 30 days of a change or 30 days after the discovery of the error, as applicable.

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Penalties for Non-Compliance: Failure to comply with the reporting obligations of the CTA can result in significant penalties, including fines and potential criminal liability. Therefore, it is crucial to take the necessary steps to gather accurate information and meet reporting deadlines.

The owners and managers of the business are in the best position to gather, arrange, and relay the necessary information to FinCEN. Such persons are also legally obligated under the CTA to submit the required reports.

So, it is important to seek legal advice whenever significant changes occur in your business to determine whether a new report must be filed with FinCEN and then follow the directions of your legal counsel regarding the filings that you must make for your business. Your diligence in managing these obligations will help to ensure compliance with this new law.

Although this alert has provided you with an overview of the CTA requirements, it is your responsibility to stay informed about the CTA and to make the filings with FinCEN as necessary. A helpful place to start your research is to visit FinCEN’s web page regarding the CTA at https://www.fincen.gov/boi and sign up for news updates.  

If you need additional assistance with the CTA, please contact us at hello@mittonlaw.com.

© 2019 – 2023 Mitton Law Firm, PLLC. All rights reserved.

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