The Corporate Transparency Act: What you need to know for 2024

On January 1, 2024, sweeping new reporting requirements are going into effect to combat hidden ownership and money laundering. The Corporate Transparency Act will require those liable to disclose information about their beneficial owners and company applicants to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

What does this mean for you? Almost all business entities will be affected and there are financial and criminal penalties for failure to properly follow the reporting rules. So, now is the time to discuss setting up internal systems to track compliance and triggers for filing. My number one recommendation is to schedule a time with your legal team to discuss drafting and implementing your compliance plan in anticipation of filing requirements.

Until then, here are the top three things to know as we enter 2024.

1. Understand who must comply.

All entities that fit the definition of a reporting company must comply with this new act. A Reporting Company is any domestic or foreign, privately held entity created or registered to do business in a state. Any entity required to file formation or registration paperwork with the Secretary of State must report certain information to FinCEN.

A few exemptions to this rule include publicly traded companies, tax-exempt entities, insurance agencies and certain “large operating companies” that fit a specific definition.

2. Understand what is reported.

A Reporting Company must provide certain identifying information on all beneficial owners. This includes beneficial owners who, directly or indirectly, exercise substantial control of 25% of the ownership or more interests in a Reporting Company. Below is a list of what exercising substantial control may consist of:

• Being a senior officer

• Holding authority over the senior officers or a majority of the board

• Having substantial influence over important decisions

• Any other type of substantial control over the entity

It’s important to remember that reporting will be required of the ultimate owner of a parent entity through multiple layers of subsidiary ownership. These rules will affect family offices, small businesses and investment entities. There are some exemptions that are allowed for minor children, custodians/agents, employees exercising control solely as part of employment, contingent ownership (i.e., right of inheritance) and creditors.

3. Understand the identifying information.

If you are a beneficial owner, you will need to identify the following:

• The full legal name of the entity

• Any trade or “doing-business-as” names

• Address

• Jurisdiction of formation

• Federal taxpayer ID number

• The beneficial owner/company applicant’s name, date of birth, home address, unique identifying number and the issuing jurisdiction (e.g., U.S. passport number or state driver’s license number), and an image of this document.

Conclusion

As the Corporate Transparency Act goes into effect, it’s essential that you not only understand how it will impact your business but also be alert and submit the required information in a timely manner. Entity formations will require a report to FinCEN within 30 days of the receipt of the creation/registration documents, and an updated report will be required within 30 days after any change to the information. Any incorrect information must also be corrected within 30 days of the discovery of the incorrect information.

For all entities already in existence on January 1, 2024, you will have one year to make the initial filing. Thereafter the same rules regarding changes and corrections apply. While there are of course penalties for failure to comply, meeting with your legal team and implementing a compliance plan will ensure you are prepared for 2024.

Read this article in The Business Journals here.