As a business owner, you likely know that you must file an annual registration with your state's government each year or every few years, which identifies the name of the company, its address, its registered agent, and its officers. For many business owners, this may be one of the few filings you have to make that discloses any personal information.

The Corporate Transparency Act, passed on January 1, 2021, and regulations issued on September 30, 2022 by the Financial Crimes Enforcement Network (FinCEN) changes that.

1. What is the Corporate Transparency Act?

Congress found that many business entities have been used for money laundering and other financial crimes, and often, the government has no idea as to who the individuals behind the entity are. Enter the Corporate Transparency Act, which requires all reporting companies (we'll talk more about what is and isn't a reporting company in the next section) to report information about themselves and who its beneficial owners are.

2. What is a reporting company? Is my business one?

“Reporting Company” is an exceptionally broad term. It includes Corporations, Limited Liability Companies, and other entities (including Limited Partnerships and Limited Liability Partnerships) created by a filing with the Secretary of State or similar office. It also includes foreign equivalents of such businesses registered to do business with a Secretary of State or similar office.

It will generally not include sole proprietorships or general partnerships, which typically require no formation paperwork.

Thus, if your business is an LLC, Corporation, LP, LLP, or any other entity formed by a filing, it is a reporting company, unless one of the 23 exceptions outlined in the Act apply. Those exceptions fall into a few major categories: highly regulated businesses, non-profits, large companies, and inactive companies.

1. Highly Regulated businesses

This category includes banks, credit unions, and entities registered with the Securities and Exchange Commission (brokers, dealers, exchanges, clearing agencies, issuers, investment advisors or investment companies, and any other business required to be registered under the Securities Exchange Act of 1934). It also includes insurance companies and insurance producers registered with a state insurance commissioner, public accounting firms under Sarbanes-Oxley, and utility companies. This list in non-exhaustive, and also includes subsidiaries of any such businesses.

1. Non-profits and non-profit support businesses

This category includes businesses exempt from tax under 501(c) of the Internal Revenue Code, political organizations exempt under 527(a), and trusts exempt under 4947(a)(1)-(2).

It also includes businesses that operates exclusively to support or hold governance rights to a non-profit. Such business must be a U.S. entity, be owned by U.S. citizens or lawful permanent residents, and derive a majority of its funding from citizens or lawful permanent residents.

This category also includes subsidiaries of any such businesses.

1. Large Companies

Perhaps the largest exception to the definition of a reporting company, this category includes any business with more than 20 full-time employees in the United States, and which filed a federal tax return for the previous year reflecting more than $5,000,000 in gross receipts, excluding receipts from sources outside the United States. 

This category also includes subsidiaries of any such businesses.

1. Inactive companies

This category includes businesses that existed on or before January 1, 2020, are not engaged in active business, are not wholly or partially owned by a foreign person, have not experienced any change in ownership over the preceding 12 months, have not sent or received any funds greater than $1,000 in the preceding 12 months, and do not hold any assets.

Note that this definition does not explicitly include all dissolved entities, and thus, any dissolved entity that existed either on or at any time after January 1, 2021, may be subject to reporting requirements.

3. My business is a reporting company! What do I have to do?

If your business is a reporting company, don't panic.

You will need to report information both about the business itself and its owners, but you have time.

For the business itself, you will need to report:

1. The full name of the business
2. Any trade names or “doing business as” monikers
3. The principal place of business (if your business is a U.S. company), or the principal office in the United States if the business is a foreign company
4. The state, tribal, or foreign government under which the business is organized
5. The business's Taxpayer Identification Number

You will also need to report certain information about the business's beneficial owners. A beneficial owner is an individual who, directly or indirectly, either:

• Owns or controls at least 25% of the ownership interest in the company; or
• Exercises substantial control over the company (e.g. serves as a senior officer, has authority to appoint and remove senior officers or a majority of the board, or directs or substantially influences important decisions made by the company)

For each beneficial owner, the reporting company will need to report:

1. Full legal name
2. Date of Birth
3. Current residential address
4. A unique identifying number from a passport or state ID
5. An image of the identification document

4. That sounds like a lot! When do I have to do this by?

For companies formed or registered to do business in the US prior to January 1, 2024, the deadline to initially report the information to FinCEN is January 1, 2025. FinCEN is in the process of developing a form on which the information should be reported.

After your initial report, you have an ongoing duty to update the report if information about the company or its beneficial owners changes. Updated reports must be made within 30 calendar days of the change. 

5. What about companies formed after January 1, 2024?

Companies formed or registered to do business after January 1, 2024 have some special requirements. They also have to report information about the company and its beneficial owners, but must do so within 30 days of receiving (or the state publishing, whichever comes first) confirmation of the company's creation.

Additionally, companies formed or registering to do business after January 1, 2024 must report information about the Company Applicant- the individual who filed the document creating or registering the company. The report must include the applicant's:

1. Full legal name
2. Date of Birth
3. Current residential address, unless the applicant routinely creates or registers companies as part of its business, in which case a business address may be used
4. A unique identifying number from a passport or state ID
5. An image of the identification document

6. What if I don't want to report this information?

There are significant penalties for not reporting the information. If you willingly fail to provide such information, you can be fined up to $500 per day you fail to report (up to a maximum of $10,000), or imprisoned for up to two years.

7. Can I go ahead and file this report now and get it over with?

No. FinCEN's reporting system is not yet operational, but it anticipates further rulemaking throughout this year to clarify exactly how and when entities will be able to complete such reports.

Stay tuned for more information on our YouTube channel, as FinCEN continues rule-making throughout the year. For help with reporting obligations, or any other business law needs, give us a call at (678) 344-5342 or visit us online.