Effective as of January 1st, 2024, the Corporate Transparency Act (“CTA”) requires many small or medium-sized businesses (SMBEs) to file with the Financial Crimes Enforcement Network (FinCEN). Your SMBE or you, as a beneficial owner, may be required to report basic information regarding your SMBE. It is estimated more than 30 million businesses will be tasked with additional reporting requirements. The CTA aims to counteract money laundering and terrorism by necessitating the registration of nearly all entities with the Department of Treasury. While certain exceptions exist, allowing specific entities to bypass registration, the primary focus of the CTA centers on small businesses, excluding large businesses registered with the SEC, non-profits, and entities supporting non-profits from its provisions.
If one of these exceptions applies, then the business will not be required to register under the CTA. The exceptions include large companies (defined as 20 or more employees with over $5,000,000.00 in annual income) and companies that are dormant and no longer holding assets. If one of these exceptions does not apply, then the business is required to report under the CTA. Some information that businesses are required to report under the CTA includes:
- the company’s legal name and any trade names
- principal place of business address
- state of formation
- business identification number, and
- articles of organization from the issuing state
Under the CTA, “beneficial owners” are also required to disclose certain information if they hold a significant interest in an LLC, corporation, partnership, or similar structure. A beneficial owner is defined as an individual who either (i) owns 25% or more of the entity or (ii) possesses the ability to exercise substantial control over the entity, most commonly as a manager, officer, or director of an entity. The CTA broadly defines “ownership” to include profit interests, capital interests, options, calls, puts, and convertible notes or warrants. Some of the reportable information for beneficial owners includes:
- full legal name
- date of birth
- home address, and
- a copy of the beneficial owner’s driver’s license or passport.
The deadlines prescribed by the CTA vary. Entities established prior to January 1st, 2024, have until January 1st, 2025, to complete their registration, while entities formed in 2024 must finalize their registration within 90 days of obtaining state approvals, and entities formed in 2025 will have 30 days to finalize their registration.
Adhering to this legislation is paramount due to the substantial penalties it carries. Violations can lead to fines of up to $500 per day, capped at $10,000, or imprisonment for a maximum of 2 years. This article is not intended to provide an expansive or exhaustive list of all reporting obligations imposed by the CTA. To ensure strict compliance with the CTA, individuals and entities are strongly advised to seek guidance from professionals when navigating the intricacies of the registration process with the Department of Treasury. Call one of the Eldridge Brooks Partners attorneys below if you have questions concerning your obligations under the CTA.
