When people hear about the “Corporate Transparency Act,” the first two questions tend to be “What is that?” and “What do I have to do?”
What is it? The Corporate Transparency Act became effective on January 1, 2024. Under this law, all required companies are subject to new reporting requirements. Specifically, private companies that meet the CTA criteria of a “Reporting Company” must file informational reports with the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). These reports must disclose the Reporting Company’s beneficial owners — i.e., the individuals who ultimately own or control the corporation, limited liability company, limited partnership or similar entity, whether through ownership of equity or through management authority. Reporting Companies will report their beneficial ownership information through a new federal government online portal called the “Beneficial Ownership Secure System.”
Reporting Companies created prior to January 1, 2024, have until December 31, 2024, to comply by filing initial reports. Reporting Companies created on or after January 1, 2024, must file their initial reports within 90 days following receipt of their creation or registration documents. Failure to comply with the CTA can result in a $500-per-day penalty (up to $10,000) and possible criminal penalties.
There is continuing litigation challenging the constitutionality of the CTA. As of now, the CTA remains in effect and Reporting Companies are required to comply and file beneficial ownership reports.
So, what do you have to do? If you own a 25% or greater interest in, or have any management authority over, any entity formed in or authorized to do business in the U.S., your first step is to determine if the company is a Reporting Company. You can find a list of the exemptions here. If your entity does not meet any of the exemptions, it is a Reporting Company. From there, you will need to gather the following information:
- The entity name, address and EIN;
- If any owner has a FinCEN ID, have that handy. This allows you to simply input the ID into the Beneficial Owner report, instead of the information required below;
- For each beneficial owner, their (i) name, (ii) date of birth, (iii) address, (iv) identifying number (either driver’s license number, government ID number or passport number), and (v) a photo of the front and back of the driver’s license, government ID or passport; and
- For entities created after January 1, 2024, the company applicant (if different from the beneficial owners), i.e., the person who formed the entity for you (often your counsel if you are represented).
Once you gather the above information, you are ready to file using the same link above. Note that it is a “click through” filing, so having all the information and documents readily available before you start the report ensures the smoothest process. While you can prepare and file these reports on your own, if you would like assistance or have questions, the “FAQ’s” on FinCEN’s website is a helpful start. We also recommend reaching out to your accountant, tax advisor, or attorney, as many of these offices are offering filing services for their clients.
Seema Patel is an attorney at May Potenza Baran & Gillespie.
