By Associate Attorney Danielle Nodar
Starting on January 1, 2024, the Corporate Transparency Act (“CTA”) will require almost all businesses to submit a report to the Financial Crimes Enforcement Network (“FinCEN”) containing personal information about the reporting company’s “beneficial owners.” This law was enacted to help combat global terrorism and money laundering but has consequences for many small business owners who up until now have been able to maintain their personal privacy while owning and operating a business.
In addition to the standard business information that one might submit to the Secretary of State, the CTA requires each business to provide personal information related to its “beneficial owners.” A beneficial owner is defined as a person who, either directly or indirectly, exercises “substantial control” over the business or who owns or controls at least 25% of the ownership interests in a business, such as stocks, voting rights, or interests in profits. A beneficial owner also includes a person in their individual capacity as managing the business, such as an LLC Manager, Board Member, or CEO, or it can be someone acting in their capacity as a fiduciary such as a Trustee of a trust that owns an interest in a business.
The required filing includes the individual’s full legal name, date of birth, current residential address, an identifying number from a non-expired government ID like a US passport or US driver’s license, and a copy of the ID document. This information must be uploaded to FinCEN’s website once it goes live.
Businesses that were formed before January 1, 2024, will have the entire year to submit their first report, so for existing business owners reading this, there is no need to panic! However, businesses created after January 1, 2024, must file their initial report within 90 days of the business’s formation. Starting in 2025, the initial report will be due 30 days after formation.
After the initial report, businesses only have to submit information to FinCEN if there is a change to the reported information (not annually like the report to the Secretary of State). There are hefty fines associated with willfully failing to comply or falsifying information on the reports, including a $500 per day fine for a continuing violation, up to a maximum fine of $10,000, and criminal penalties that may include up to two year’s imprisonment.
The CTA applies to businesses that are formed or registered to do business in the U.S. by filing a document with a government office. There are certain entities that are exempt from the CTA’s reporting requirements, such as nonprofits and large operating companies that are already subject to regulatory oversight such as publicly traded companies, insurance companies, and registered investment companies. A trust itself is not a business subject to the CTA; however, if a trust is an owner of a business subject to the CTA, the trust may need to provide identifying information about its beneficial owners to FinCEN.
Jesson & Rains is working with our current and new business clients to assist with understanding and complying with the CTA’s new reporting requirements. For all new businesses formed by the firm in 2024, Jesson & Rains will submit the initial report on behalf of the business. For our business clients that are members of our Annual Business Maintenance Plan, we will submit the initial report for 2024 and can assist with filing any amended reports so long as you are a member of the Annual Plan.
If you are interested in having Jesson & Rains handle these reporting requirements for you, please give us a call! More information on our Annual Plan services can be found here
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