The Corporate Transparency Act: What 2024 Has in Store for LLCs, Partnerships, and Corporations

With the New Year comes new rules and regulations for new and existing companies throughout the United States. 2024 will be the year of the Corporate Transparency Act (the “CTA”).

Beginning January 1, 2024, unless an exemption applies, all entities that are either (1) formed, or (2) registered to do business in the United States by filing documents with a secretary of state or a similar office under the law of a State or Indian Tribe (herein referred to as a “Reporting Company”) shall be subject to the CTA. Pursuant to the CTA, Reporting Companies will be required to file a one-time report with the US Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”). The report to FinCEN must include information about (i) the Reporting Company, (ii) the “Beneficial Owners” of the company and (iii) its “Company Applicants” (if applicable).

If there are changes to the Reporting Company’s information, then the report must be updated within 30 days of the time the applicable change takes place. Additionally, any future changes to individuals who qualify as Beneficial Owners will also need to be reported to FinCEN within 30 days of the time that the applicable change occurred. If any information in the submitted report is inaccurate, corrected information must be submitted within 30 days of when the company became aware of such inaccuracy.

What is a Beneficial Owner you ask?

A Beneficial Owner is any individual who, directly or indirectly, (i) exercises substantial control over the entity (e.g., LLC Manager, Corporate Officer, etc.) or (ii) owns or controls twenty-five (25%) percent or more of the ownership interests in a Reporting Company. An individual exercises substantial control over a Reporting Company if they are either (i) a senior officer; (ii) have authority to appoint or remove certain officers or a majority of directors of the Reporting Company; (iii) an important decision-maker; or (iv) has any other form of substantial control over the Reporting Company.
It is important to note that if the shares or interest of a Reporting Company are held by a trust, the Beneficial Owner of the Reporting Company could be (i) the Grantor or Settlor of the trust who has a right to revoke the trust or withdraw assets, (ii) the Trustee or person holding authority to dispose of trust assets, or (iii) a sole beneficiary who is the recipient of income and principal, or a beneficiary who has the right to demand distribution or withdraw substantially all assets from the trust.

Of course, there are exclusions to the definition of Beneficial Owner, such as (i) minor children, (ii) non-senior employees and (iii) an individual whose only interest in a corporation, LLC, or other similar entity is through a right of inheritance.

Who is considered a Company Applicant?

A Company Applicant is an individual who (i) directly files or (ii) is primarily responsible for the filing of the document that creates or registers the company. Each Reporting Company is required to report at least one Company Applicant, and at most two.

Example of a Company Applicant who directly files the documents: Individual A is creating a new company. Individual A prepares the necessary documents to create the company and files them with the relevant State or Tribal office, either in person or using a self-service online portal. No one else is involved in preparing, directing, or making the filing. Individual A is the Company Applicant and should be included in the report.

Example of a Company Applicant who directs the filing of the documents: Individual A is creating a company. Individual A prepares the necessary documents to create the company and directs individual B to file the documents with the relevant State or Tribal Office. Individual B then directly files the documents that create the company. Individual A and B are Company Applicant and both should be included in the report.

Not all companies are required to report their Company Applicants to FinCEN. A Reporting Company that was formed or registered to do business before January 1, 2024, is exempt from reporting to their Company Applicant. All Reporting Companies formed or registered on or after January 1, 2024, shall be required to report to the Company Applicant.

What information the report must include about the (i) Reporting Company, (ii) the Beneficial Owners and (iii) the Company Applicant.

The Reporting Company must provide the following information about itself:

1. Legal name, trade name and d/b/a;
2. Address of principal place of business;
3. The State, Tribal or foreign jurisdiction of formation or registration of the Reporting Company; and
4. IRS Tax ID Number

The Reporting Company must include in the report the following information for each Beneficial Owner and each Company Applicant:

1. Full Legal Name;
2. Date of Birth;
3. Current residential or business street address; and
4. A Unique identifying number from an acceptable identification document (passport, driver’s license, etc.), or a FinCEN Identifier.

What is the Deadline to file the Initial Report:

The deadline is based on when the Reporting Company was formed. Reporting Companies created or registered to do business on or after January 1, 2024, must file a report with FinCEN within 30 days after receiving notice of the company’s creation or registration. Reporting Companies formed or registered before January 1, 2024, have until January 1, 2025, to file their report with FinCEN.

The exemptions to the CTA?

Currently there are twenty-three (23) categories of entities that are exempt from the reporting requirements under the CTA. Most of the exemptions apply to entities that are already subject to substantial federal or state reporting requirements, such as banks, securities brokers and dealers, insurance companies and accounting firms. Also exempt are (i) “large operating companies,” which are defined as a company with more than 20 full-time employees, that has filed income tax returns demonstrating more than $5,000,000 in gross receipts or sales and has an operating presence at a physical office within the United States; and (ii) tax-exempt entities, including any organization that is described in section 501(c) of the Internal Revenue Code.
Click here for a complete list of the 23 exemption under the CTA.

Penalties for Noncompliance:

Failure to comply with the CTA reporting requirement can result in civil and criminal penalties. Failure to file a complete, initial or updated report with FinCEN is subject to a fine of $500 per day for each day the report is overdue, or a filed report contains inaccurate information. Failure to comply with the CTA can also result in criminal penalties, including a fine up to $10,000 and/or a prison sentence up to two (2) years, can apply if you willfully violate the CTA’s reporting requirements or supply false information.

So, what are the next steps?

If you have any questions about the CTA, how it could affect your business, or require assistance in preparing a report pursuant to the CTA, please contact Chimuanya A. Osuoha, Esq. at cosuoha@lexnovalaw.com or call 856-382-8452. We look forward to being of service.

The newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.

https://fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf

About the Author

Chimuanya Osuoha is an Attorney at Lex Nova Law. She focuses her practice on corporate and business law matters. She has experience helping companies file for Woman Business Enterprise Certificates, and drafting employment agreements, asset purchase agreements, lease agreements, and corporate organizational documents for various entities. Read More.