The Corporate Transparency Act - What You Need to Know

by Kristy Hoad, Esq.

As 2024 approaches many people are talking about what new laws will take effect in the new year, and the one that has many business owners scrambling is the Corporate Transparency Act. The purpose of this new law is to reduce the ability of anonymous or “maligned actors” to use U.S. corporations or other entities to launder money and disguise their ownership structure.  The new law imposes an obligation to report beneficial ownership information to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN)

The biggest questions on everyone’s mind are: Who must report? What do I report? How do I report? What happens if I don’t report?”

Let’s start with who must report.  “Reporting Companies.” What are reporting companies? Any corporation, limited liability company, or similar entities created by the filing of a document with the Secretary of State or similar office of under the law of a state who file to do business in the U.S, with some exemptions.  Exemptions include large operating companies with offices in the US that generate $5million or more in revenue on US Sources and have 20 full time employees, some non-profits, banks and financial services. Go generally, if you are a small business owner, most you will need to report.

What do I report? The Financial Crimes Enforcement Network wants to know who the Beneficial Owners of a company are. When they say Beneficial Owners, they mean anyone who directly or indirectly owns or controls 25% or greater ownership interest and anyone who exercises substantial control over the Reporting Company. Additionally, a Company Applicant will also need to report. A Company Applicant is a person who filed paperwork for the Beneficial Owner to create the company.

What do I report? The Reporting Company will need to report company name and any other names the company does business under, the principal physical address in the U.S. (not a P.O. Box), the Sate of Formation, and the Tax ID Number. For the Beneficial Owners and Company Applicant, you need to include their legal names, physical address, an official government ID (like an unexpired driver's license, or passport), and a copy of that ID.  These persons are required to keep their information update on an “as needed” basis should information, such as their address, changes. Individuals and entities can secure FinCEN Identifiers.

How do I report? An online portal called the Beneficial Ownership Secure System (BOSS) will be opening in January 2024, allowing people to submit their report electronically. Because the portal is not yet available, there are still some questions about how reporting will work. We do know that FinCEN will be publishing guidance for compliance documents in the future, and we know that the reports you submit will not be available to the general public. If your company already exists, you have until January 1, 2025, to file your report. If you are creating a company in 2024, you must submit your report within 90 days of formation. Companies created January 1, 2025 or after will need to report within 30 days of creation.

What happens if I don’t report? The CTA has both civil and criminal penalties for individuals who “willfully provide, or attempt to provide, false or fraudulent beneficial owner information,” or who “willfully fail to report complete or updated beneficial ownership information”. The penalties range from $500 per day that each violation continues, all the way up to $10,000 and or 2 years in prison.

While there are a few exceptions for certain types of companies, they are narrow, and you should consult with an attorney to be sure you do not find yourself facing those steep penalties.

For more information you can see the resources published by FinCEN at www.fincen.gov/boi/small-entity-compliance-guide.

Kristy Hoad is an associate at the Law Offices of Jenny Ling, PLLC.  She focuses her practices on estate planning and business succession planning.