Client Alert: The Corporate Transparency Act – Federal Reporting Required of Your Business in 2024

Posted February 20, 2024

  • Client Alert:  The Corporate Transparency Act – Federal Reporting Required of Your Business in 2024

As of January 1, 2024, almost every company in the United States has new, mandatory federal reporting requirements pursuant to the Corporate Transparency Act of 2021 (the “CTA” or the “Law”). The Law’s effective date follows a long period of speculation and confusion about the Law and the practical effects of its implementation for businesses of all sizes.

The goal of the CTA is to curb money laundering and other illicit activity by eliminating the possibility of corporate anonymity through a system of required reporting for almost all companies. The U.S. Department of Treasury tasked the Financial Crimes Enforcement Network (“FinCEN”), with implementing the Beneficial Ownership Information (“BOI”) system, that requires most companies that do business in the U.S. to file reports about the people who own them. The BOI reports will be held in a protected database and will require each owner’s name, date of birth, and address, as well as a valid form of identification (the “Database”). In addition, for companies created after January 1, 2024, this same information must also be reported about the person or people who filed the documents to create the company.

There is extensive criticism of the CTA and frequent challenges from business groups and others who highlight the confusion and fear among business owners related to the new Law and its implications. Politicians have blasted the new Database for presenting small businesses with serious bureaucratic roadblocks, what they described as a “mountain of red tape”, and concerns for privacy have been frequently raised. Nonetheless, the most significant challenge to the CTA is likely that the Law itself is unknown by many, yet both civil and criminal penalties exist for noncompliance with its regulations. For example, in a recent survey of its members, the National Federation of Independent Business found that a shocking 90% of respondents did know about the CTA and its requirements.

That’s where Florio Perrucci Steinhardt Cappelli & Tipton LLC can help.

While there is much to say about the possible implications and results of the Corporate Transparency Act, here are the “CTA Basics” that you need to know now:

1. Determine whether company is required to report to FinCEN. The CTA applies to all domestic and foreign corporations, LLCs and other business entities, except those included in FinCEN’s list of 23 exemptions. The Beneficial Ownership Information Reporting Rule (the “Reporting Rule”) explains which entities must file BOI reports (“BOI Reports” or “Reports”) to FinCEN (each, a “Reporting Company”); describes who from the Reporting Company is responsible for filing those BOI Reports; and details what information must be provided to the Database. Reports will contain information about the entity itself and two categories of individuals: beneficial owners and company applicants.

2. Important Deadlines:

  • If the company was created before January 1, 2024, it will have until January 1, 2025 to file a BOI report with FinCEN.
  • If the company was created on or after January 1, 2024, it will have ninety (90) days after receiving actual notice of its official creation to file a BOI report with FinCEN.
  • If the company was created on or after January 1, 2025, it will have thirty (30) days to file a BOI report with FinCEN.

3. A Beneficial Owner is (i) any individual who directly or indirectly exercised substantial control over a Reporting Company; or (ii) owns or controls at least 25% of the ownership interests of a Reporting Company.

4. Company applicants include the “direct filer” and the individual who “directs and/or controls the filing action”.

By starting to understand and assess the CTA basics mentioned above, you can better manage your expectations of compliance with the Law, as it relates to your company and your company’s growth and success. That being said, we are here to help. Our firm will walk you through each step of this process and will advise you as to how the CTA might affect your corporate structuring in the future, or other aspects of your business.

Remember, ignorance of the law is not a defense. Failure to comply with the reporting requirements under the CTA can result in significant consequences, including monetary fines, civil enforcement actions, and even criminal prosecution in cases of willful or egregious violations.

Please contact Natalie Ohana or Seth Tipton if you have any questions or need additional information.

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