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The Corporate
Transparency Act (“CTA”) was enacted to prohibit shell companies
from hiding the identity of their owners. The CTA became
effective January 1, 2024 and requires most private businesses to
report company ownership information to the Financial Crimes
Enforcement Network (“FinCEN”).
The CTA is project
to affect over 32 million existing businesses and millions of
businesses formed each year. If an entity is formed by filing
documentation with an applicable Secretary of State, whether it be
a corporation or limited liability company, then the company likely
must comply with the CTA.
Entities
formed January 1, 2024 or later: Your
company must file a report to FinCEN within 90 days of formation
(or within 30 days of formation for new entities formed on or after
January 1,2025).
Entities
formed prior to January 1, 2024: Your
company must file a report to FinCEN not later than January 1, 2025.
Entities
undergoing certain changes in ownership or control: Your
company must update the previously filed report within 30 days of
the change.
Companies formed
after January 1, 2024 must report personal information about the
company’s “Beneficial Owners” and “Company Applicants” (i.e the
individuals that assisted in forming the company), while entities
formed prior to January 1, 2024 must only disclose the company’s
Beneficial Owners.
If a company is required to disclose information
about its Beneficial Owners or Company Applicants, the following
must be disclosed:
·
Name and Birthdate;
·
Address
(residential for Beneficial Owners and business for Company
Applicants); and
·
A unique
identifying number from either a passport or drivers license and a
photocopy thereof.
Beneficial
Owners are individuals who either directly or indirectly:
Exercise
substantial control over a reporting company; or Own or control at
least a 25% ownership interest in a reporting company.
FinCEN ultimately
wants to know the identity of each person behind a company.
This means if you own a company through your ownership in another
entity, your identity needs to be disclosed, not the name of a
business.
What are the
consequences for failing to report? If
the filer of the report willfully provides false information or
willfully fails to report, FinCEN could impose civil penalties of
up to $500 per day (up to a maximum of $10,000), criminal penalties
including a prison sentence not to exceed two years, or both.
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