From January 1, 2024, the Corporate Transparency Act will come into effect, meaning millions of business owners across the country will need to submit additional reporting. Failure to submit these reports may result in penalties and potentially jail time.
We urge you to read this blog carefully, as the steps you take over the next year will be critical in your reporting process.
Disclaimer: This blog should be used for introductory purposes and not as a replacement for professional assistance with compliance and legal advice. Please feel free to contact our Florida business lawyers today to guide you through the process.
Table of Contents
- What Is the Corporate Transparency Act?
- When Do I Need to File The Initial Report By?
- What Are The Penalties for Non-Compliance with the Corporate Transparency Act?
- Who Is Required to Report Under the Corporate Transparency Act?
- Who Is Exempt from Corporate Transparency Act Reporting?
- How Do I File My Corporate Transparency Act Reports?
- What Must I Report Under the Corporate Transparency Act?
- What Is ‘Substantial Control’?
- How Does the Corporate Transparency Act Affect My Business?
- Hire a Business Lawyer in Riverview and St. Petersburg, FL
What Is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) establishes the reporting requirements for Beneficial Ownership Information (BOI) for qualifying companies (Reporting Companies) in the U.S. It was passed in 2021, requiring companies to file the information with the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
It was passed as part of the National Defense Authorization Act, to combat corruption and financial crime. The primary purpose is to reveal any attempts at using shell companies that cover up or fund illicit activities.
Its reporting rule goes into effect as of January 1, 2024. All business owners should take care to ensure they follow all regulatory requirements. It is advised to speak to your Florida business attorney should you have any questions.
When Do I Need to File The Initial Report By?The due date of your company’s Beneficial Ownership Information report is determined by when your business was formed.
For Reporting companies registered before January 1, 2024:
- No later than January 1, 2025. You can begin as early as January 1, 2024.
Formed On or After January 1, 2024:
- Within 30 days after receiving notice of an effective formation or registration.
What Are The Penalties for Non-Compliance with the Corporate Transparency Act?Filing a false BOI and not filing at all result in:
- Civil penalties of $500 per day, and/or;
- Up to 2 years in prison and $250,000 of criminal penalties.
Who Is Required to Report Under the Corporate Transparency Act?If you are a small business owner, you can assume your business is a Reporting Company. The following entities must comply with the Corporate Transparency Act:
- Any incorporated entity
- A limited liability company ‘LLC’
- Any entity created via the Secretary of State, or any similar office under the law of a State or Indian tribe.
- Any corporation, LLC, or other entity that is formed under the laws of a foreign country and is registered to do business in any State or tribal jurisdiction.
- This includes:
- Limited Partnerships
- Business Trusts
- Statutory Trusts
Who Is Exempt from Corporate Transparency Act Reporting?23 categories of entities are exempt from being classified as reporting companies. These include:
- Large operating companies: Companies with 20+ full-time U.S. employees, more than $5 million in U.S.-sourced revenue and a physical operating presence in the U.S.
- Issuers registered with the Securities and Exchange Commission;
- Banks, bank holding companies, savings and loan holding companies, credit unions, financial market utility entities, and money services businesses registered with FinCEN.
- Registered Commodity Exchange Act entities, registered investment companies or investment advisers, broker-dealers and registered venture capital fund advisers.
- Insurance companies or state-licensed insurance producers
- Accounting firms
- Public utilities
- Certain pooled investment vehicles
- Tax-exempt entities or certain entities that assist tax-exempt entities
- Inactive companies.
How Do I File My Corporate Transparency Act Reports?Reporting companies can file online using a system accessible here. Your Florida business attorney may be able to provide you with a mock-up based on preliminary information so you can get yourself organized.
What Must I Report Under the Corporate Transparency Act?
- Companies created before January 1, 2024, must submit information about their beneficial owners but are not required to report information on their Company Applicants.
- Companies created on or after January 1, 2024, must file both the Company Applicants and Beneficial Owners.
- Entity Name
- Any alternative names, such as trade names.
- Business street address
- Jurisdiction of Formation
- The State or Tribal jurisdiction of registration, for foreign companies.
- A unique identification number (such as TIN, EIN, LEI, etc.).
- Its beneficial owners
Company ApplicantsSome entities will also need to report the ‘Company Applicants’. These are:
- The name of who is responsible for filing, directions or controlling the filing of formation documents.
- Full legal name
- Date of birth Current residential or business street address
- A unique identifying number from an acceptable identification document
- An image of the document.
Changes to Previously Reported Information
- Any changes to information previously reported concerning a Reporting Company or beneficial owner, must be reported to FinCEN within thirty (30) days.
- No updates are required to Company Applicant information.
- Any errors must be reported within thirty (30) days of when you became aware.
- Any time there is a change in an entity’s ownership, the entity may be required to file beneficial owner information or update an existing report. Please contact your Florida business lawyer to determine what your entity must file.
Beneficial OwnersThe Corporate Transparency Act defines a beneficial owners as someone who:
- Exercises substantial control over a Reporting Company or;
- Owns or controls at least 25% of the ownership interests of a Reporting Company.
What Information Must a Beneficial Owner Report?Beneficial owners must submit personally identifying information to FinCEN. It will be used to confirm their business is legitimate.
- Date of birth
- Residential street address
- A unique identifying number from an ID document
- The state or jurisdiction that document was issued by.
What Is ‘Substantial Control’?The Corporate Transparency Act defines that anyone has substantial control over a Reporting Company if they:
- Serves as a senior officer of the Reporting Company (holding a position or exercising the authority of the president, CEO, CFO, COO, general counsel or any other similar officer)
- Has authority to appoint or remove any senior officer or board directors (or similar).
- Has substantial influence over important matters of the entity.
How Does the Corporate Transparency Act Affect My Business?This act’s requirements are new, so the full impact cannot be conveyed just yet. However, you can expect:
- Reporting Obligations: Additional compliance tasks, to collect, maintain and report information. You may need to update how you operate, your systems, responsibilities and policies.
- Financial Costs: FinCEN estimates that businesses will need to spend from between $85.14 to $2,614.87 to stay compliant. The more simple your entity is, the lower the cost will likely be.
- Time Costs: Additional work will be required to remain compliant and file the reports. So ensure that you have scheduled time to complete these obligations. It is wise to hire a Florida business attorney to remove the time cost and ensure compliance.
- Enhanced Transparency: The CTA will remove a level of privacy for many entities.
- Improved Business Relationships: In theory, the CTA should improve business security in the US and remove illegitimate business entities, making life better for all honest businesses.
- Reputational Increase: Compliant companies can inspect an improved standing with customers, partners and investors as compliance shows a commitment to transparency.