The Corporate Transparency Act (CTA) was enacted by Congress on January 1, 2021. This law was part of the National Defense Authorization Act for the fiscal year 2021.[1] The announced purpose of this law is to address the utilization of “shell companies” in connection with the commission of crimes, terrorist activities and tax fraud. This new federal law may impose reporting requirements on your business entity (or entities).
If your business entity falls within the statutory definition of “reporting company” then the law requires that certain personal identifying information be provided to the federal government. The term “reporting company” generally includes corporations, limited liability companies or other similar entities which are either created by the filing of a document with a state’s secretary of state (or a similar office) or formed under the law of a foreign country and registered to do business in the United States by the filing of such a document. Unless your business entity falls within one of the twenty-three (23) excluded categories of businesses, then the law requires that personal identifying information be provided about the “beneficial owner(s)” of each such “reporting company”. Businesses which are excluded are generally those businesses which are already subject to substantial federal or state regulations (such as banks, insurance companies, credit unions, etc.). Also excluded are “large companies” which employ more than 20 employees on a full time basis and have reported more than $5,000,000 in gross receipts or sales for the previous year on their federal income tax returns.
If your business is deemed to be a “reporting company”, then the “beneficial ownership information" required to be reported includes the full legal names, birthdates, current residential addresses, unique identifying numbers from an acceptable identification document, and photographs of the “beneficial owners” of the business. A “beneficial owner” is an individual who owns (directly or indirectly) 25% or more of the business or who exercises “substantial control” over such business.
Under this law, existing businesses have a grace period through January 1, 2025, to comply with any reporting requirements. However, a corporation, limited liability company or other similar entity which is created or registered during 2024 has only ninety (90) days within which to comply with the reporting requirement. Starting on January 1, 2025, newly created or registered businesses have only thirty (30) days to comply with this law. Please keep these reporting deadlines in mind as you consider the obligations imposed by this new law on your existing business, or on any business which you may form in the future. In addition to the initial report, the law requires that changes in the beneficial ownership be reported as well.
This law imposes penalties for failure to comply which include monetary fines ($500 per day up to $10,000 per violation) and incarceration of up to two years.[2] Thus, we recommend that you take time to review and consider the impact of this law on your business given the potential adverse consequences for failure to comply.
For general reference and information, the internet can be a good starting point for articles and commentaries about this law. In addition, the Financial Crimes Enforcement Network (FinCEN) under the U.S. Department of Treasury will be administering this law. The FinCEN website is currently up and running, and has information regarding the law and its requirements. The online reporting system (Beneficial Ownership Secure System {BOSS}) is scheduled to go live January 1, 2024. This is the website for your business to file its report with the Department of Treasury starting January 1, 2024.
Finally, FinCEN has recently published an alert warning the public of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under CTA. Therefore, we urge you to be very careful about unsolicited communications which you may receive from unknown third parties titled “IMPORTANT COMPLIANCE NOTICE” (or similar language), which requests that you click on a URL or scan a QR code. These emails or letters may be fraudulent. FinCEN does not send unsolicited requests to businesses. Therefore, do not respond to these fraudulent messages, or click on any links or scan any QR codes within them. Again, the official website of the United State Government, Financial Crimes Enforcement Network, has a link which will give you access to additional information about this law and its application to your business.[3]
If you have any questions about or need any assistance in connection with complying with this law, please contact us. @skslawfirm.com
[1] 31 U.S.C. §5336
[2] 31 U.S.C. §§5336(h)(1), 5336(h)(3)(A)