The Corporate Transparency Act, passed as part of the Anti-Money Laundering Act of 2020, took effect on January 1, 2024, and creates a new reporting requirement for most entities formed or registered to do business in the U.S, unless specific exceptions apply. While the new law aims to make it harder for money launderers, terrorists, and other lawbreakers to benefit from their ill-gotten gains, it also creates new and ongoing compliance obligations that will require attention for business owners of all sizes. Here, we look closer at the Corporate Transparency Act, its major provisions, and what business owners need to know about beneficial ownership reporting and other compliance requirements.

Corporate Transparency Act Background

The Corporate Transparency Act creates a new requirement to report beneficial ownership information to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) as part of the U.S. government’s efforts to fight money laundering and terrorism financing.

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What Entities Need to Report?

Companies that must report their beneficial owners to FinCEN are called “Reporting Companies.” Under the Corporate Transparency Act, a “Reporting Company” is a corporation, LLC, or similar entity created by filing a document with a U.S. state or Indian tribe. Accordingly, unless an exemption applies, all corporations, LLCs, and other entities formed or registered in the U.S. will need to report, even in cases where the entity has limited operations or one or only a few owners. The timing for filing a report depends on when the entity was formed. For entities formed on or after January 1, 2024, the report must be filed with FinCEN within 90 days of formation. For entities formed prior to January 1, 2024, the report must be filed with FinCEN by January 1, 2025. An updated report must be filed within 30 days of any change in the information contained in the original report.

Corporate Transparency Act Exemptions

The Corporate Transparency Act expressly excludes 23 categories of entities from the beneficial ownership information reporting requirements. Generally, they fall under the following categories.

• Publicly traded companies. Companies that are already subject to reporting requirements under the Securities Exchange Act of 1934 are typically exempt.

• Certain financial institutions. Entities like banks, credit unions, and registered investment companies are generally exempt as they are subject to other regulatory frameworks that address similar concerns.

• Charities and nonprofit organizations. Entities that are tax-exempt under sections 501(c) of the Internal Revenue Code are generally exempt.

• Government entities. Entities that are already subject to substantial reporting requirements or are instrumentalities of the government may be exempt.

• Entities with a large physical presence. Companies that have a substantial physical presence in the United States may be exempt if they meet the following criteria:

  • 20 full-time employees;

  • A U.S. physical office; and

  • $5 million in U.S. gross receipts or sales as shown on a federal tax return filed in the prior year.

Speak with a business law attorney at Church Church Hittle and Antrim to determine if your entity falls under an exempted category.

What Information Must Be Reported?

A reporting entity must submit an information report to FinCEN of its beneficial owners as directed by the Corporate Transparency Act. A beneficial owner is any individual who, directly, or indirectly, exercises substantial control over the reporting company; or owns or controls at least 25% of the reporting company’s ownership interests.

The report of the beneficial owners of the reporting company must include information about the reporting entity itself, beneficial owners, and company applicants, who must provide their personal information and not just the entity’s information. The information that must be provided for each beneficial owner includes: full legal name(s), trade names for the reporting company, dates of birth, addresses, and an acceptable form of identification, most commonly a state-issued driver’s license. For a reporting company that was created or registered on or after January 1, 2024, it must also disclose its company applicant(s), defined as an individual who either:

• Directly files the document that creates a domestic reporting entity or first registers a foreign entity to do business in the U.S.; and

• Is primarily responsible for directing or controlling the filing of the relevant document by another, if more than one individual is involved in the filing.

You can meet one of both of these qualifications to qualify. The information, once filed, will not be publicly available. Instead, FinCEN will store such information in a secure non-public database, which can only be accessed by law enforcement and national security agencies via proper channels.

Are There Penalties for Not Reporting?

The Corporate Transparency Act provides for both civil and criminal penalties in case of violations. Fines can include up to $500 per day, and violators may even face prison time. If you have questions about the Corporate Transparency Act or need help with keeping your business compliant, give the business law team at CCHA Law a call. We can help you deal with the legal side while you focus your attention on your business’s growth and success. Give us a call to schedule a consultation or fill out our online contact form.