13 Jul Overview of the Corporate Transparency Act
In the coming months, I will be discussing this Act in depth with my business clients, but I wanted to provide a general overview or introduction to a law that was signed in 2021 but will not go into effect for reporting purposes until January 1, 2024.
If you are a business owner – this more than likely will apply to you!
Starting January 1, 2024, most business entities (LLC, corporations, partnerships – really anything registered with the Secretary of State), will have to start filing reports with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). These reports will have to disclose the “beneficial owners” of the company. This includes anyone who directly or indirectly exercises “substantial control” over the company, OR anyone who owns at least 25% of the ownership interests. As a result of the “substantial control” factor, these disclosures may also include roles such as senior officers, CEO’s, CFO’s, and so on, even if they have no ownership in the company.
In addition to reporting basic information on the reporting company, the information required on the “beneficial owners” includes:
- the individual’s full legal name;
- residential address
- the unique identifying number from a non-expired driver’s license, identification document, or
- an image of the identification document.
There are 23 exemptions to reporting, but most are for already heavily regulated industries such as banks, insurance companies, and certain nonprofits. Other exemptions include large operating companies. The timeframe for reporting is that existing businesses (formed prior to Jan. 1, 2024) will have until January 1, 2025, to file their first report. Newly formed companies (on or after Jan. 1, 2024) will have 30 days from the time of their company (Secretary of State) registration to file their first reports.
You may ask why do we have to do this and what happens if we don’t? The rationale behind the required reporting is that the lack of transparency can allow criminals and other bad actors to launder money through the U.S. using shell companies. The reporting is also said to be necessary for law enforcement to track and prosecute criminal activity. As far as what happens if you don’t report – enforcement includes harsh civil penalties and the possibility of imprisonment.
The actual reports/system is not available as of this writing but will be in the coming months. In the meantime, it’s important for business owners to be aware of the requirements, get questions answered, and prepare to collect and submit the required information starting in 2024.
FinCEN has also provided a list of frequently asked questions you can find here:
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