Business Update: Corporate Transparency Act Fact Sheet

by Kresimir Peharda | Mar 5, 2024 | Growing the Business

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On September 29, 2022, the Department of Treasury Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the ownership requirements of the Corporate Transparency Act (CTA).

All businesses, including family businesses, are impacted by this legislation. Family businesses may have special privacy concerns that will need to be addressed if filing is required.

Why is it necessary?

According to FinCEN, the CTA is necessary because “Illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the U.S. financial system. Not only do such acts undermine U.S. national security, but they also threaten U.S. economic prosperity: shell and front companies can shield beneficial owners’ identities and allow criminals to illegally access and transact in the U.S. economy, while creating an uneven playing field for small U.S. businesses engaged in legitimate activity.”

What is the CTA?

The CTA will require reporting companies, as defined below, to file reports with FinCEN disclosing certain ownership information.

What is a reporting company?

A domestic reporting company is defined as any entity that is a corporation, a limited liability company, or is created by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe.

A foreign reporting company is defined as any entity that is a corporation, a limited liability company, or other entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe.

What entities are exempt and thus not reporting companies?

The rule in CFR Title 31 Section 5336(a) lists 24 entities that are exempt for the purposes of the CTA.  These include companies with a class of securities listed with the SEC, banks, insurance companies, non-profits, etc.

What is the most common exempt entity category?

Arguably the most common exempt entity is one that:

(1) employs more than 20 full-time employees in the U.S.,

(2) filed, in the previous tax year, Federal income tax returns showing more than $5,000,000 in gross receipts or sales, and

(3) has an operating presence at a physical office in the U.S.

What information is required to be reported?

All non-exempt reporting companies will be required to file a report as follows:

A.  Information about the reporting company:

(1) its full legal name,

(2) any trade or “doing business as” names,

(3) a complete current address consisting of: (i) in the case of a reporting company with a principal place of business in the United States, the street address of the principal place of business, and (ii) in all other cases, the street address of the primary location in the United States where the reporting company conducts business,

(4) the state, tribal or foreign jurisdiction of formation,

(5) for a foreign reporting company, the state or tribal jurisdiction where the company first registers, and

(6) the IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number) or where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

B.  Information about each of the individuals who are the company’s beneficial owners and applicants:

(1) full legal name,

(2) date of birth,

(3) complete current address consisting of: (i) in the case of a company applicant who forms or registers an entity in the course of the company applicant’s business, the street address of the business, or (ii) in any other case, the individual’s residential street address,

(4) unique identifying number and the issuing jurisdiction from one of the following documents:

(i) a non-expired passport issued to the individual by the United States government, (ii) a nonexpired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual, (iii) a non-expired driver’s license issued to the individual by a State, or (iv) a non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the other documents described, and

(5) an image of the document from which the unique identifying number was obtained.

When does it go into effect?

January 1, 2024 for newly formed entities, and January 1, 2025 for previously existing entities.

The information provided is intended for general informational purposes only and should not be construed as legal, tax, or financial advice.

Kresimir Peharda

Kresimir is a corporate and M&A attorney who helps families own, operate, grow, and sell their businesses. He has advised on, negotiated and closed deals in the $ Billions. Kresimir enjoys assisting families with building a team of outside professionals to maximize business efficiency and ensure long term success. He also has experience mediating disputes between business family members.

About the Author

Kresimir is a corporate and M&A attorney who helps families own, operate, grow, and sell their businesses. He has advised on, negotiated and closed deals in the $ Billions. Kresimir enjoys assisting families with building a team of outside professionals to maximize business efficiency and ensure long term success. He also has experience mediating disputes between business family members.