Your Business Is Probably One of the 36 Million Companies That Have New Reporting Obligations Under the Corporate Transparency Act’s New Regulations.

09.27.23

By David H. Freedman, Jordan M. Small, and Ronald A. Sollish

Here Is What You Need To Know and Do To Comply.

UPDATE: On September 27, FinCEN issued a Notice of Proposed Rulemaking which would affect companies created or registered in 2024. The proposed change would give those companies 90 days, instead of 30 days to file their initial beneficial ownership information reports. This change would only apply to companies registered in the year 2024, and companies created before January 1, 2024 would still have until January 1, 2025 to file their initial reports. As in the current rule, companies created on or after January 1, 2025 would have 30 days to file their initial reports.

To stay informed of any future updates, follow Maddin Hauser’s Corporate Transparency Act Resource Page and the firm’s LinkedIn and Facebook pages.

If you own a business, you will likely need to provide the federal government with detailed information soon about who established, owns, controls, or influences your business. That is because your company is probably one of the estimated 36 million American businesses that must comply with the new disclosure requirements of the Final Rule implementing the Corporate Transparency Act (CTA).

With an effective date of January 1, 2024, and with the Final Rule detailing the who, what, and when of compliance with the CTA, businesses must act now to determine whether they are a “Reporting Company” subject to the law and, if so, what they need to do to satisfy their obligations.

What Is the Corporate Transparency Act?

The CTA was enacted in 2021 as part of an aggressive effort by the federal government to combat “the use of shell and front companies by illicit actors who use them to obfuscate their identities and launder ill-gotten gains through the United States.” The law attempts to expose such money laundering and other illicit financial activities by requiring about 90% of American business entities to report their “Beneficial Ownership Information” (BOI) to the Financial Crimes Enforcement Network (FinCEN) division of the U.S. Treasury Department.

On September 29, 2022, FinCEN issued its Final Rule implementing the CTA, clarifying which companies must comply with the law’s disclosure requirements, and describing the specific information those entities must provide.

Who Has To Report BOI to FinCEN Under the CTA?

Under the Final Rule, a “Reporting Company” is a corporation, limited liability company, or any other entity created by filing a document (e.g., Articles of Incorporation) with a secretary of state or equivalent agency. Entities that can be established without such filings, like general partnerships or sole proprietorships, are likely not subject to the CTA’s reporting requirements.

Businesses Excluded From the CTA’s Reporting Requirements

The CTA lists 23 types of businesses exempt from the law’s disclosure obligations. Most exempted businesses are already subject to substantial government reporting requirements, such as securities dealers, banks and other financial institutions, and public companies. The most common exemptions will be for (a) inactive entities formed before January 1, 2020 that are not receiving funds or engaged in active business, (b) large companies with more than 20 full-time employees in the United States, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the United States, or (c) tax-exempt entities.

What Reporting Companies Need To Disclose About “Company Applicants” and “Beneficial Owners”

All non-exempt Reporting Companies must provide FinCEN with BOI regarding “Beneficial Owners” associated with the company, while some new companies may also be required to report “Company Applicants.”

“Beneficial Owners”

A “Beneficial Owner,” as defined in the Final Rule, is any person who, directly or indirectly, either:

Owns or controls at least 25% of a reporting company’s ownership interests; or
Exercises substantial control over a reporting company.

The Final Rule contains a detailed analysis of the characteristics of “ownership interests” and “substantial control” that would render an individual a “Beneficial Owner” whose BOI must be reported under the CTA.

“Company Applicants”

As defined in the Final Rule, a “company applicant” is “the individual who directly files the document that first creates the domestic reporting company” as well as “the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.” Effectively, the person who filed the necessary paperwork with the state to create the entity will likely be considered the “Company Applicant,” whose BOI the company must provide.

Only new Reporting Companies created from and after January 1, 2024, will be required to report Company Applicants. Further, such new Reporting Companies do not need to provide updates to FinCEN regarding Company Applicant information after their initial report.

What Needs To Be Reported to FinCEN and When

Non-exempt Reporting Companies must provide FinCEN with the following information regarding Beneficial Owners:

Full legal name.
Date of birth.
Street addresses (identified as a current residential or business street address).
Non-expired state identification document or passport.

Reporting Companies created from and after January 1, 2024, will be required to report the same information for Company Applicants.

Entities created or registered before January 1, 2024, must file with FinCEN by January 1, 2025. Entities created from and after January 1, 2024, must file with FinCEN within 30 calendar days of receiving actual or public notice from the secretary of state or similar office in which the Reporting Company was created or registered.

FinCEN has indicated that it will accept reports electronically but has not yet clarified the method for electronic reporting.

How Maddin Hauser Can Help Your Business Comply With the CTA

Business owners are rarely enthused by the thought of more paperwork and new regulatory obligations. However, failing to comply with the CTA comes with significant penalties. Any person or entity that “willfully provides, or attempts to provide, false or fraudulent information or willfully fails to report when required” faces civil penalties of up to $500 per day for each violation, up to $10,000 in criminal fines, and up to two years in federal prison.

Fortunately, Maddin Hauser’s business lawyers are well-versed in these new reporting requirements and will continue to stay abreast of any updated compliance guidance or direction from FinCEN. We can quickly and efficiently determine the nature and scope of your obligations under the CTA and help prepare and submit any necessary disclosures.

If you would like to discuss how the CTA may impact your business and how Maddin Hauser can help you with compliance, please contact Jordan Small, David Freedman, or Ron Sollish.