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Action Required – Corporate Transparency Act

On Behalf of | Feb 16, 2024 | Firm News |

The Corporate Transparency Act (the “CTA”) took effect on January 1, 2024 and applies to corporations, limited liability companies and other entities. Failure to comply with the provisions of the CTA may result in significant civil penalties, and in some cases, criminal penalties. The information provided in this alert is informational only. The CTA contains detailed provisions; this alert provides limited information concerning the CTA filing requirements. If you would like us to provide legal advice or counsel with respect to your obligations under this new law, please contact us. If we are able to assist, we will memorialize our agreement to provide these services in a separate email or letter.

Background and Reporting Deadlines.

The general objective of the CTA is to prevent bad actors from using legal entities in the United States, particularly shell companies, to commit crimes by requiring certain businesses (called “Reporting Companies”) to report information regarding their beneficial ownership to the Financial Crimes Enforcement Network (“FinCEN”). Failure to report the required information within the prescribed time period may result in civil and/or criminal penalties.

Reporting Companies created prior to January 1, 2024 will have until December 31, 2024 disclose all relevant information to FinCEN.

Reporting Companies created on or after January 1, 2024, but before January 1, 2025, will have ninety (90) days after the entity is formed to disclose all relevant information to FinCEN.

Reporting Companies created on or after January 1, 2025 will have thirty (30) days after formation to disclose all relevant information to FinCEN.

What is a Reporting Company?

The CTA’s definition of a domestic Reporting Company includes corporations, limited liability companies, and other entities created by the filing of a document with a secretary of state or similar office under the law of a U.S. state or Indian tribe.

Although most entities are included in the CTA’s definition, certain legal entities are not created by the filing of a document with a secretary of state or similar office and consequently are not subject to CTA reporting obligations. For example, certain types of trusts would not be Reporting Companies because they are not created by the filing of a document with a secretary of state or similar office. Further, there are a number of exemptions to the definition of a Reporting Company, including banks, inactive entities that were created on or before January 1, 2020, tax-exempt entities, certain large operating companies (i.e., more than 20 full-time employees and more than $5,000,000 in gross receipts or sales), and publicly traded companies.

Information Required.

Initial reports to the FinCEN must include certain information with respect to:

  • the Reporting Company itself (such as the company’s legal name, current address, state of formation, and IRS employer identification number);
  • the Reporting Company’s “Beneficial Owners;” and
  • the Reporting Company’s “Company Applicant,” if the Reporting Company is created or registered to do business in a U.S. state after January 1, 2024.

A Company Applicant is the individual who, in the case of a Reporting Company, directly files the document that creates the company. If more than one individual is involved in the filing, the individual who is primarily responsible for directing or controlling the filing is also considered a Company Applicant.

A Beneficial Owner is defined as any individual who, directly or indirectly, either exercises substantial control over a Reporting Company or owns or controls at least 25% of the ownership interests of a Reporting Company. Initial reports must include the individual’s legal name, date of birth, current address, and a copy of the individual’s official photo ID (e.g., passport or driver’s license).

After a Reporting Company files its initial report, there are no requirements for annual filings. However, the CTA does require Reporting Companies to file updated or corrected reports if there is a change in required information previously submitted to FinCEN concerning the Reporting Company or its Beneficial Owners. Changes in information concerning the personal information of a Company Applicant need not be reported.

Potential Liability for Failing to File.

Willful violations of the reporting obligations under the CTA may result in civil penalties of up to $500 for each day the violation continues. In some cases, FinCEN can also seek criminal penalties, including imprisonment for up to two years and/or a fine of up to $10,000.

How to File.

CTA reports may be submitted on the Beneficial Ownership Information page of the Financial Crimes Enforcement Network, which is a United States government website. You can obtain FinCEN ID numbers, or “identifiers,” on that page as well.

If you believe that the Corporate Transparency Act is applicable to any entity in which you are involved or in which you have a beneficial interest and you would like assistance with reporting or further information regarding the Corporate Transparency Act, please contact your accountant or your attorney at your earliest convenience. As mentioned above, absent an express agreement to advise you on CTA matters, LeBeau Thelen does not assume responsibility for advising you regarding the CTA or for filing any reports on your behalf.