 |  | The new federal Corporate Transparency Act ("CTA") requires most small businesses to report personal information about business owners to the federal government. The specific agency gathering the information is FinCEN, which is a special agency within the U.S. Department of the Treasury. This information is referred to as beneficial ownership information ("BOI"). Reporting entities include corporations, limited liability companies, and other entities created by state filings. Beneficial owners are those who own or control at least 25% of the company. The reporting law requires disclosure of personal information concerning most officers, directors, managers, and anyone who exercises substantial control over the business. Similarly, anyone who filed the document that created or registered the entity must also report. There are several exemptions – for example nonprofits, accounting firms, insurance companies, and any business with over twenty employees or over $5 million in annual revenue.
The goal of the CTA is to increase transparency and prevent terrorism, fraud, and money laundering by gathering information from beneficial owners. The information reporting process is no simple task. FinCEN requires each covered entity to report by uploading the required information to a FinCEN website that is not yet publicly available, but presumably will be soon. Each entity must determine which individuals are required to report "Personally Identifying Information" or "PII." Although the federal government has not yet finalized the reporting details, the required PII will require each individual to provide full name, any alias, date of birth, street address of residence, and a copy of the individual's driver's license or passport. Additional required information includes:
- Details regarding the entity itself such as legal name, trade names, street address of principal place of business, state of formation, and IRS employer identification number, and
- Information about the organizer or incorporator of the entity, including full name, any alias, date of birth, street address of residence, and a copy of the individual's driver's license or passport.
The CTA applies immediately on January 1, 2024, but existing entities have an entire year to comply. Reports for existing entities formed on or before December 31, 2023, must be filed by January 1, 2025. Reports for entities created or registered between January 1, 2024, and December 31, 2024, must be filed within ninety days after their creation or registration. Reports for entities created or registered after December 31, 2024, must be filed within thirty days after their creation or registration.
After the initial filing, changes to the reporting entity's information or BOI must be reported within thirty days. For example, if a business takes on new owners or elects new officers or directors, that information must be reported within the thirty-day period. Furthermore, any inaccuracy in the information submitted must be corrected within thirty days.
Noncompliance with the CTA can include civil penalties up to $500 per day for a violation, criminal fines up to $10,000, or imprisonment for up to two years.
We will be working with our clients to help assure compliance with these new filing requirements. In the meantime, please feel free to contact any of the business attorneys at Farleigh Wada Witt for specific guidance for complying with the CTA.
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