New Federal Law on Corporate Transparency  

Effective January 1, 2024, the Corporate Transparency Act (“CTA”) will go into effect for all states. The CTA seeks to identify entities used for money laundering and other criminal activities, by requiring certain business entities to disclose their ownership and control to the U.S. Treasury Department. Below are the main points to this new law:

• Reporting Companies: The CTA applies to all corporate entities which are required to register with the Secretary of State where they are domiciled. In most states, this means corporations, limited liability companies and partnerships. Foreign entities created under foreign law but doing business in the U.S. are also subject to the CTA.
• Threshold: The CTA applies to all subject entities having less than $5 million in annual revenues or less than 20 U.S. full-time employees. This applies to any subsidiaries or affiliated entities as well.
• Reporting Deadline: An entity formed prior to January 1, 2024 has until January 1, 2025 to file. An entity formed on or after January 1, 2024 must file within 90 days of registration. An entity formed on or after January 1, 2025 must file within 30 days of registration.
• Reporting Requirements: The entity must report certain information about itself, and identify and report all individuals who own a 25 percent or greater interest in the entity (“beneficial owner”), or who otherwise exercises “substantial control” over the entity (e.g., operates as a “senior officer,” can appoint or fire a senior officer, or has “substantial influence” over “important decisions”). The individual who forms the entity (Company Applicant) must also be identified and reported.
• Information Required: The entity must report its business legal name, any trade names, principal address, jurisdiction of formation, TIN and EIN. Further, the entity must report the applicable individuals’ full legal name, residential street address, date of birth, and the number on the individual’s passport, driver’s license or other government-issued I.D. (a copy of the subject form of identification must also be filed).
• Change in Information: If an individual’s reported information changes, the change must be reported within 30 days.
• Burden: The burden to report is on the entity. However, if an individual obtains a “FinCEN identifier” from the Treasury, then the burden to report any changes in information is on the individual.
• Penalties: The CTA imposes substantial criminal and civil penalties for “willfully” failing to report information or providing false information (i.e., up to $500 per day for willful violations or $200 per day for negligent violations, up to a total of $10,000, and may face up to two years in jail).
• Exemptions: Some exemptions are entities that exceed the aforementioned threshold, entities not required to file/register with the state, certain tax-exempt entities, and dormant entities (currently inactive and formed prior to January 1, 2020). You can find a complete list of exemptions and other relevant details about the CTA at FinCEN’s FAQ section here: https://www.fincen.gov/boi-faqs.