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Corporate Transparency Act – New Federal Law (Business Owners Beware)

All business owners must be aware of the reporting requirements for the new federal law – Corporate Transparency Act.

The Corporate Transparency Act (the “CTA”) went into effect January 1, 2024, and “reporting companies” in the United States are required to disclose information regarding its beneficial owners. According to the CTA, beneficial owners are defined as individuals who own or control a company, and such information must be submitted to the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).

What are the Reporting Companies?

Reporting companies include corporations, LLCs, or any other similar entities, that are created by filing documents with a Secretary of State.

The CTA identifies certain exempted entities that are not considered reporting companies. Examples of exempted entities include banks, credit unions, SEC-reporting companies, insurance companies and public accounting firms.

A specific exemption exists for an entity that:

  1. Employs more than 20 employees on a full-time basis in the United States;
  2. Filed in the previous year federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales; and
  3. Operates and has a presence at a physical office within the United States.

Who are Considered Beneficial Owners?

A beneficial owner is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

  1. Exercises substantial control over the entity; or
  2. Owns or controls at least 25% of the equity interests in the entity.

What are Companies Required to Report?

For reporting companies that are subject to the CTA, they are required to provide the following information regarding the entity:

  1. Full legal name;
  2. Trade names or d/b/a names;
  3. Address of the entity;
  4. The jurisdiction of formation or registration; and
  5. The federal taxpayer identification number.

Formation Requirements

If the reporting company is formed on or after January 1, 2024, the required information related to the company applicant must also be filed. A company applicant is both:

  1. The individual who directly files the document that creates or registers the company, and
  2. The individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

In addition, if both (i) and (ii) are the same individual, that person is solely the company applicant. The same information is required to be filed regarding the company applicant as the beneficial owners.

Exactly What Company Must Report

Existing reporting companies that were formed before January 1, 2024, must file their initial reports no later than January 1, 2025. For reporting companies that are formed after January 1, 2024, the reporting company must file their initial reports 90 days after they are formed.

How to File – FinCen Electronic Filing

If a company is required to report its beneficial ownership information to FinCEN, the company must file the required information electronically through a secure filing system available via FinCEN’s (U.S. Treasury Financial Crimes Enforcement Network) website [www.fincen.gov].

Violating the CTA

Any person who provides false information or fails to comply with reporting requirements is liable for civil penalties of no more than $500.00 per day, for each day that the violation continues. In addition, violators are also subject to criminal penalties of imprisonment of up to two (2) years, and fines of up to $10,000.00.

Other Problems

Failure to comply with the CTA could have other adverse consequences.

Business owners must determine whether they meet the definition of a reporting company, and if so, determine what must be done in order to comply with the CTA. Additionally, given the complexity of the CTA, it is critical for employers to file with FinCen in a timely manner.

Before attempting to file with FinCen, business owners should consult with their attorney.

About Us
Oberman Law Firm represents clients in a wide range of practice areas, including private equity, M&A, healthcare, corporate transactions, intellectual property, data privacy and security, regulatory compliance and governance, cross-border transactions, labor and employment, construction law, litigation, private clients’ services, corporate restructuring, and white-collar and governmental disputes.

As a firm, we offer the highest quality legal advice coupled with extraordinary and tailored service to deliver exceptional results to our clients. Our philosophy is to invest deeply in the brightest legal talent and build dynamic teams that operate at the pinnacle of respective practice areas. We believe in empowering our attorneys, encouraging entrepreneurialism, operating ethically and with integrity, and collaborating to bring the very best to every client engagement. These principles have guided us in building extraordinary and successful long-term partnerships with our clients.

Stuart J. Oberman is the founder and President of Oberman Law Firm. Mr. Oberman graduated from Urbana University and received his law degree from John Marshall Law School. Mr. Oberman has been practicing law for over 30 years, and before going into private practice, Mr. Oberman was in-house counsel for a Fortune 500 Company. <strong><a href="https://obermanlaw.com/people/stuart-j-oberman/"><span style="color: #0059b8;">Read More =></span></a></strong>