The Corporate Transparency Act (CTA) represents the most impactful piece of federal business legislation you have likely never heard of. The CTA is the culmination of decades of pressure on the U.S. to reform its entity disclosure requirements to follow the standards recognized by other developed nations. Intending to reduce money laundering and terrorism funding through U.S. entities, the CTA turns entity disclosure requirements on their head by introducing new conditions impacting over 30 million existing U.S. businesses and an untold number more moving forward.
Companies that fall under the CTA’s jurisdiction include Domestic and Foreign Reporting Companies. Domestic Reporting Companies are corporations, LLCs, or other similar entities created by filing a document with the secretary of state (or similar office) under the law of a State or Tribe. Foreign Reporting Companies include corporations, LLCs, or other similar entities formed under the law of a foreign country and registered to do business in any State or tribal jurisdiction by filing a document with the secretary of state (or similar office) under the law of a State or Tribe. LPs, LLPs, LLLPs, and business statutory trusts are included, while general partnerships and common law trusts are excluded. The CTA applies to every Domestic and Foreign Reporting Company, unless it fits within one of 23 exceptions (many exceptions cover entities that are subject to some other type of federal monitoring).
There are two important deadlines to note, depending on when a Reporting Company was formed. Reporting Companies formed prior to January 1, 2024, must file an initial report with the U.S. Treasury Department Financial Crimes Enforcement Network (FinCen) by January 1, 2025. This report contains certain information about the Reporting Company itself and its Beneficial Owners. A Beneficial Owner is any individual who exercises substantial control over the company or who owns or controls at least 25% of the company. Senior officers, persons with substantial influence over company decisions, and persons with authority over appointing or removing senior officers or a majority of a company’s board are considered Beneficial Owners.
Reporting Companies formed on or after January 1, 2024, must file an initial report with FinCen within 30 days of formation. This report contains certain information about the Reporting Company itself, its Beneficial Owners, and its Company Applicants. A Company Applicant is any person: (a) who directly files the document creating a domestic Reporting Company; (b) who first registers a Foreign Reporting Company; or (c) who is primarily responsible for directing/controlling such filing if more than one person was involved.
Violations of the CTA include willfully providing or attempting to provide false/fraudulent beneficial ownership information and willfully failing to report or update beneficial ownership information. Penalties include fines up to $500 per day ($10,000 maximum), or imprisonment up to two years.
The CTA will affect most U.S. businesses, and the reporting deadlines will be here before we know it. With serious penalties for failure to comply, business owners would be wise to consult with an attorney who understands the Act. The attorneys at Rose Law Firm are happy to assist business owners with determining the applicability of the Act, as well as any required reporting.