Approximately three years ago, Congress enacted the Corporate Transparency Act, (the “Act”) with little to no publicity. The Act is significant because it requires most small businesses to file a report to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury, disclosing certain information about their entities. The Act takes effect beginning January 1, 2024. Its purpose is to provide transparency regarding ownership of legal entities to prevent money laundering, tax fraud and other illegal activities. This letter summarizes the basics of the Act, its requirements, and how it may potentially impact you.

Entities Required to Report

The Act applies to all “reporting companies.” Any domestic or foreign entity that is a corporation, limited liability company, or created through or registered to do business by the filing of a document with a secretary of state or other similar state office is deemed a “reporting company.” Unless a “reporting company” is exempt, an information filing with FinCEN is required. There are twenty-three limited exemptions, each of which is narrowly defined and regulated under other federal laws. Whether an entity may qualify as exempt requires careful examination before exempt status can be confirmed.

Reporting Responsibility

The Act requires reporting companies to report certain identifying information about their company together with information about each “beneficial owner” and certain “company applicants” to FinCEN.

Beneficial Owners

A beneficial owner is an individual who directly or indirectly either exercises “substantial control” or owns at least 25 percent of the “ownership interest” of a reporting company. Substantial control and ownership interest are defined under the Act and can vary from entity to entity. Therefore, examining a reporting company’s structure and formation will be necessary to determine who qualifies as a beneficial owner and what information will need to be collected. The Act obligates beneficial owners to provide correct and accurate information to their reporting companies.

Company Applicants

A company applicant is the individual who files the document with the secretary of state or other similar state office that forms or registers a reporting company. A company applicant is also an individual who is primarily responsible for directing or controlling such a filing if more than one individual is involved. The requirement for submitting company applicant information to FinCEN only applies to reporting companies formed on or after January 1, 2024.

Information Required to be Reported

Reporting Companies

Reporting companies will need to report the following information about the reporting company:

• Full legal name of the company, including trade names and DBAs;
• A complete current address showing the principal place of business;
• The state of formation or state of first registration; and
• The Internal Revenue Service (IRS) issued Taxpayer Identification Number (TIN).

Individuals

Reporting companies will need to report the following information about beneficial owners and company applicants:

• Full legal name;
• Date of birth;
• Complete current address;
• A unique identifying number along with the issuing jurisdiction; and
• A photocopy of the document containing the unique identifying number.

FinCEN Identifiers

Individuals who do not wish to provide the required information directly to a reporting company can obtain a FinCEN Identifier beginning January 1, 2024. The information listed above will need to be reported directly to FinCEN and in exchange, a unique identifying number will be issued. Reporting companies can then report FinCEN Identifiers in lieu of the individual’s identifying information and documentation.

Deadlines

The effective date of the Act is January 1, 2024. Reporting companies existing as of December 31, 2023, must file the required report with FinCEN by January 1, 2025. Reporting companies formed in 2024 will have 90 days to file. Reporting companies formed after January 1, 2025, will have 30 days to file. Additionally, any change to information of a reporting company or beneficial owner (e.g., address, name change, etc.) is required to be reported within 30 days of such change.

Reporting Violations

Willfully providing false or fraudulent information to FinCEN or willfully failing to report complete or updated information to FinCEN in accordance with the Act will result in a violation of the law. Civil penalties of up to $10,000 accruing at $500 per day, imprisonment for no more than 2 years, or both, may be imposed for noncompliance.

Contact Bever Dye, LC if Assistance is Needed

This is a very brief summary of the new Act. The details, including definitions, procedures, and exemptions are too numerous to fully explain here. Pursuant to the Act, it is the sole responsibility of the reporting company to file the required reports.