What is the Corporate Transparency Act and Does it Affect Me?

This is important new information for business owners.

A new law is coming in 2024 that will impact an estimated 32.6 million current businesses operating in the United States. Non-compliance with this law could result in both monetary fines and even imprisonment for business owners. In 2021, Congress passed the Corporate Transparency Act (“CTA”), which tasks the United States Department of Treasury with developing a system to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals.”[1]

To assist in this effort, the Treasury instructed the Financial Crimes Enforcement Network (“FinCEN”) to establish and maintain a national registry of “Beneficial Owners” and applicants[2] of entities that are deemed “Reporting Companies.”

Reporting Companies. There are two (2) types of Reporting Companies:

• Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.[3]

• Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

Exceptions. 23 types of companies described above will not be considered a “Reporting Company” for purposes of the CTA. That limited list can be found here. From the list we can see that most entities will be considered a “Reporting Company” for purposes of the CTA.

Beneficial Owners.

In general, a Beneficial Owner is any individual (1) who directly or indirectly exercises “substantial control” over the Reporting Company, or (2) who directly or indirectly owns or controls 25% percent or more of the “ownership interests”[4] of the Reporting Company.

For example, individuals will have substantial control of a Reporting Company if they direct, determine, or exercise substantial influence over, important decisions the Reporting Company makes. In addition, any senior officer is deemed to have substantial control over a Reporting Company.  Other rights or responsibilities may also constitute substantial control.[5]

The Reporting Company must provide the following information for Beneficial Owners and applicants:

·      Full legal name;

·      Date of birth;

·      Current residential address of Beneficial Owner and the business street address of the applicant[6]; and

·      A unique identifying number from an acceptable identification document (passport, driver’s license or other government issued identification document) or a FinCEN identifier.[7]

According to FinCEN, only certain government entities[8] will be able to review this information, and there will be penalties to any individual found disclosing such information.[9]

It is important to comply with this new law. Anyone who willfully or attempts to provide false or fraudulent beneficial ownership information, or willfully fails to report complete or updated beneficial ownership information, to FinCEN is subject to a US$500-per-day fine (up to US$10,000) and imprisonment for up to two years.[10]

The deadlines for this new law are fast approaching. A Reporting Company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report. Those created or registered on or after January 1, 2024, will have 30 days to file their initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

If you have questions about this topic or others, and as more information becomes available, feel free to check out our firm articles here.

The experienced attorneys at Blue Sky Law help businesses in Atlanta and around the country. We’ve managed businesses ourselves, and we value the work that goes into building a successful enterprise. We know how much you care about your business, and we want to help you protect it. Give us a call or contact us online to learn what we can do for you.

[1] Office of Representative Carolyn Maloney, Press Release, “Maloney Celebrates Inclusion of Corporate Transparency Act in FY2021 NDAA” (Nov. 19, 2020).

[2] See 31 U.S.C. § 5336(a)(2).

[3] For example, limited liability companies and other entities created through filings with a secretary of state. See 31 U.S.C. § 5336 (a)(11)(A) (2021).

[4] “Ownership interests” generally refer to arrangements that establish ownership rights in the Reporting Company, including simple shares of stock as well as more complex instruments. Additional information about ownership interests, including indirect ownership, can be found in the Beneficial Ownership Information Reporting Regulations at 31 CFR §1010.380(d)(2).

[5] Additional information about the definition of substantial control and who qualifies as exercising substantial control can be found in the Beneficial Ownership Information Reporting Regulations at 31 CFR §1010.380(d)(1).

[6] Applicant information only for entities formed on or after January 1, 2024.

[7] See 31 U.S.C. § 5336(a)(1).

[8] See 31 U.S.C. § 5336(c).

[9] See 31 U.S.C. §§ 5336(h)(2) and (3)(B). 

[10] See 31 U.S.C. §§ 5336(h)(1) and (3)(A).