The Corporate Transparency Act Goes Into Effect

By Tara Seidel

The Corporate Transparency Act (31 U.S.C. § 5336 and regulations at 31 C.F.R. 1010.380), goes into effect in January 2024 and may impact your small business by requiring you to report information about your business ownership to the federal government. Failure to comply with these reporting requirements could result in the imposition of civil and criminal penalties.

Congress enacted the CTA in order to address corruption and other financial misconduct, such as money laundering and the use of illicit shell corporations. The legislation states that it is necessary to protect national security interests as well as interstate and foreign commerce.  As part of the government’s efforts, the CTA will require certain business entities to report information about themselves and their “Beneficial Owners.” Such information shall be stored by the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) in a secure and confidential database, protected at the “highest security level,” while the information is available to national security, intelligence and law enforcement agencies.

The CTA’s reporting requirements are imposed on “Reporting Companies,” which includes corporations, LLCs or other similar entities that have been created by a filing with a secretary of state (North Carolina or other), whether under the law of the United States or a foreign country, so long as it is registered to do business in the U.S.  The CTA does include a limited number of statutory exemptions for some business entities, such as tax-exempt organizations, larger entities (with at least twenty full-time employees and gross receipts or sales of more than $5,000,000, among other requirements) and certain entities in the financial industry (e.g., banks, credit unions and accounting firms).

In general, the CTA requires each Reporting Company to submit to FinCEN the following company information:

  • The full legal name of the company;
  • Any trade name or d/b/a/ name of the company;
  • The current address of the company; and
  • the company’s EIN.

The CTA also requires information about the Reporting Company’s Beneficial Owners. In general, a Beneficial Owner is an individual who either (1) owns or controls at least 25% of the interests of the Reporting Company, or (2) exercises substantial control over the Reporting Company. Who is or is not a Beneficial Owner of your entity should be subject to close analysis under the language of the CTA – it may include a senior officer of the company or a Board member.

Additionally, for entities created on or after January 1, 2024, the CTA requires the same information be submitted about the “Company Applicant” – the individual who directly files the document that creates the entity. This will have implications for legal representatives who file applications with the secretary of state on behalf of their clients. In a scenario where an attorney oversees the filing of creation documents by a paralegal, both the attorney and the paralegal may be considered a Company Applicant and therefore subject to the CTA. Reporting is not required for Company Applicants for businesses that were in existence prior to 2024.

The following information about each Beneficial Owner and Company Applicant must be reported:

  • Full legal name;
  • Date of birth;
  • Current residential or business street address; and
  • The ID number from an acceptable identification document (such as a nonexpired passport or driver’s license) or a unique FinCEN identifier (which can be obtained upon application by an individual providing FinCEN with certain identifying documents).

Any changes to previously submitted information regarding a Beneficial Owner or a Reporting Company must be filed with FinCEN in an updated report within thirty (30) days after the date of such change to the information. Such changes include registering a new business name, a change in Beneficial Owners (such as a new CEO), or any change to a Beneficial Owner’s name, address or unique ID. The CTA does not require changes to the Company Applicants’ information to be updated.

Timing of the Reporting Obligations:

If the Reporting Company was created prior to 2024, it will have one (1) year in which to file its initial report with FinCEN (to be submitted no later than January 1, 2025).

If the Reporting Company is created in 2024, it is required to file its initial report with FinCEN within thirty (90) days following the company’s formation.

For a Reporting Company created on or after January 1, 2025, it shall be required to file its initial report with FinCEN within thirty (30) days following the company’s formation.

If an entity experiences a change with respect to who is a Beneficial Owner, or with respect to the information of a particular Beneficial Owner, the Reporting Company must file an updated report within thirty (30) days of the occurrence of such change.

Reports can be filed online at beginning January 1, 2024.

At this time, at least one national organization has challenged the constitutionality of the CTA. In November 2022, the National Small Business Association filed a lawsuit against the U.S. Department of the Treasury alleging that the CTA violates the U.S. Constitution, and this case is slowly working its way through the federal court system. It will be interesting to see whether such challenges to Congress’s authority to require small, in-state companies to disclose their private information regarding ownership to the federal government will be successful.

Envisage attorneys are available to help you understand the CTA and the requirements it may impose upon you and your business. If you have questions about this alert or think we might be of assistance to you, you may contact us at (919) 755-1317.

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