Be Sure You’re Ready: The Corporate Transparency Act is Coming Soon!

To help combat money laundering, prevent financing of terrorism and drug and human trafficking, and deter securities fraud among other illicit activities, January 1, 2024, will usher in the new reporting requirements for most small and closely held businesses. Courtesy of the Corporate Transparency Act (CTA) established under the Anti-Money Laundering Act of 2020, companies will be required to disclose beneficial ownership information to the Treasury Department’s Financial Crimes and Enforcement Network (FinCEN).

What does this mean for existing entities?

All domestic corporations, limited liability companies, and other entities created under state law and formed prior to January 1, 2024, will have until December 31, 2024, to report the required information to FinCEN.

Because the CTA aims to garner information on shell companies and entities with no or little operations, it provides 23 exemptions allowing an entity not to report. One such exemption is for operating companies that meet the following requirements: (1) employ more than 20 full-time employees in the U.S., (2) had more than $5,000,000 in gross receipts or sales as reported on the prior year’s IRS Form 1120, and (3) have an operating presence at a physical office in the U.S.

What does this mean for new entities?

New entities created on or after January 1, 2024, will have 30 days from actual notice of creation or after a secretary of state provides public notice of the entity’s creation or registration, whichever is earlier, to file the required reporting information.

Whose information is reported?

Individuals who directly or indirectly exercise substantial control over the entity, senior officials who have substantial control over a company, and individuals who own or control 25% or more of ownership interests are the Beneficial Owners who must disclose required information under the CTA.

What kind of information do Beneficial Owners have to report?

Beneficial Owners must disclose their name, birthdate, and residential street address, and must provide an accepted form of identification. The CTA mandates that the identification produced include the individual’s name, state, and jurisdiction of the issued document, and a photocopy of the document must be included.

What kind of information do entities have to report?

Entities themselves are required to provide information, including the entity’s formal legal name, all trade names, street address of principal place of business, jurisdiction of entity formation or registration, and the entity’s tax identification number.

Entities formed January 1, 2024, or thereafter, will also be required to provide information regarding the entity’s company applicant. A company applicant is an individual who directly files the document that creates or initially registers the entity and an individual who is primarily responsible for directing or controlling the filing of the document.

What happens if my business doesn’t report?

Penalties. Steep penalties.

Businesses that fail to report or provide false information are subjected to a civil penalty of $500 per day up to $10,000 for non-compliance and could face possible jail time.

Because of these penalties, make sure your business is in compliance with the CTA and file the necessary reporting information beginning January 1, 2024.

For updated information, click here.

Published in the September 2023 St. Louis Small Business Monthly.

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