The Corporate Transparency Act (CTA) is a piece of legislation passed by the United States Congress in 2020 as part of the Anti-Money Laundering Act of 2020. Its stated purpose is to combat money laundering, terrorism financing, and other illicit activities by increasing transparency in corporate structures.
That may be so, but it also mandates new regulations on our small businesses and its constitutionality has already been challenged in court by multiple states. These challenges don’t mean businesses should ignore the new reporting requirements that are due January 1st of next year, instead, this article is meant to help outline what this new law requires to better prepare you for the looming deadline.
Entities Required to Report:
Most privately held corporations, limited liability companies (LLCs), limited partnerships, and similar entities, whether domestic or foreign, that are formed or registered to do business in the United States must file a Beneficial Ownership Information (BOI) report with FinCEN.
The CTA lists 23 categories of entities that are exempt from reporting. The list of exemptions may be viewed here: https://www.fincen.gov/boi-faqs.
Beneficial Owners:
Beneficial owners are individuals who either:
Exercise substantial control over a reporting company, or
Own or control at least 25% of the ownership interests of the reporting company.
The definition of substantial control is broad. It applies to individuals who are exercising authority as a senior officer, individuals with the authority to appoint or remove senior officers, individuals who have direct and substantial influence over important matters of the company, or any other form of substantial control that the act does not specifically list.
Reporting:
A business must provide the following information about itself:
The legal name of the company.
Any assumed business name (DBA or "trade name") used by the company.
The current street address of its principal place of business. If the principal place of business is not in the U.S., then the company must report the address from which it conducts business in the U.S.
Taxpayer identification number (TIN or EIN).
The company must indicate the type of report being submitted (initial report, correction of a prior report or an update to a prior report).
Owners of the business are also required to provide personal information.
An acceptable identification document is one of the following:
A non-expired driver’s license issued by a U.S. jurisdiction.
A non-expired identification document issued by a U.S. jurisdiction or local government, or Indian Tribe used for the purposes of identifying the individual.
A non-expired passport issued by the U.S. Government.
If the individual does not have any of the three forms of identification described above, then the reporting company may provide the identifying number from a non-expired passport issued by a foreign government.
There are different requirements for reporting for companies created on or after January 1, 2024.
The individual’s legal name; date of birth and residential street address.
If the company applicant is an individual who engages in the business of business formation (i.e., an attorney, paralegal or service company employee) and submits formation or registration documents in that course of business, then the address submitted may be the company applicant’s business address instead of the residential address.
A unique identifying number from an acceptable identification document.
The name of the state or jurisdiction that issued the acceptable identification document.
An image of the acceptable identification document.
How to submit reports:
Businesses will submit their reports directly to the Financial Crimes Enforcement Network’s (FinCEN) website.
Please be aware that scam attempts are prevalent. If you receive an unsolicited communication from someone via phone, text, or email claiming to represent FinCEN, it’s a scam and you should not respond.
This is not an annual report. Businesses are only required to submit an initial report – updated or corrected reports are only required when deemed necessary.
If you have any questions, please contact FinCEN:
There is a contact form on this page: https://www.fincen.gov/contact
Email address is FRC@fincen.gov
Phone number: 1-800-767-2825
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