Are You Ready For It? The Corporate Transparency Act Takes Effect January 2024.
As the new year approaches, changes are on the horizon for businesses across the United States. On January 1st, 2024, the Corporate Transparency Act (CTA) is set to become effective. This act marks a milestone in the fight against financial crimes and aims to increase transparency within the corporate world. In this post, the business attorneys at Thompson Legal will provide you with an overview of the CTA and how it will impact your business.
Please note that this post is not exhaustive, and every situation is unique. In the event that you have questions about your business, it’s advisable to speak with a licensed attorney. Contact Thompson Legal to schedule a discovery call with a Michigan business attorney.
What is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act (CTA) is a federal law aimed at preventing financial crimes such as money laundering, tax evasion, and other illicit activities facilitated by anonymous shell companies. The act mandates certain companies to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
According to recent reports from the Small Business Administration, 27,104,006 small businesses were termed “non employer firms” and had no employees. The CTA is aimed to improve business transparency through the required reporting of Beneficial Ownership Information (BOI) and is particularly designed to target these smaller businesses.
Who Does the CTA Apply To?
The CTA primarily applies to entities known as "reporting companies." Reporting companies are further identified as either domestic or foreign. “Companies” are defined as corporations, limited liability companies (LLCs), or other similar entities registered with the secretary of state. Reporting companies typically also include:
Limited Liability Partnerships,
Limited Liability Limited Partnerships, and
Business Trusts.
Exemptions include securities issuers, domestic governmental authorities, banks and some others that don’t fall into the categories discussed above.
What is a Beneficial Owner?
A beneficial owner can be any individual who, directly or indirectly, either:
Exercises substantial control over a reporting company, or
Owns or controls at least 25% of the ownership interests of a reporting company.
Beneficial owners must report to FinCEN their name, date of birth, address, and unique identifier number from a recognized jurisdiction and provide a photo of that document. If an individual decides to file their information to FinCEN directly, they may be issued a “FinCEN identifier” which can be provided on a BOI report instead of the required information.
Who is a Company Applicant?
Company applicants can only be:
The individual who directly files the document that creates the entity, or the document that first registers the entity to do business in the United States.
The individual is primarily responsible for directing or controlling the filing of the relevant document by another.
Preparing for Compliance
With the CTA set to take effect in just a few months, it's crucial for affected companies to start preparing now. Here are some steps to ensure your business is ready:
Identify Beneficial Owners: Begin the process of identifying and gathering the necessary information for your beneficial owners.
Appoint a Submitter: Designate an individual or entity responsible for submitting the report to FinCEN.
Stay Informed: Keep up with the latest updates and guidance on CTA compliance from official sources, such as the Financial Crimes Enforcement Network (FinCEN) website at FinCEN Website.
Consult Professional Counsel: Seek professional counsel from qualified legal or accounting professionals to navigate the complexities of the CTA and ensure that your business is fully compliant.
Compliance with the reporting requirements depends on the formation date of each reporting company. For entities formed prior to Jan. 1, 2024, reports must be filed no later than January 1st, 2025. If there is a change to the information previously submitted to FinCEN, an entity must file an updated report within 30 calendar days of the change occurring. The same applies for any situations where a reporting company becomes aware of an inaccuracy in a report.
For entities formed on or after January 1st, 2024, reports must be filed within 30 calendar days of when it receives actual notice that its creation has become effective or when the secretary of state or similar office provides public notice of its formation, whichever occurs first.
Conclusion
The Corporate Transparency Act is a significant step toward promoting transparency in corporate ownership and combating financial crimes. By understanding the requirements and acting proactively, businesses can ensure a smooth transition into the new era of corporate transparency. If you have questions about how these changes will affect your business, contact Thompson Legal to schedule a discovery call with an experienced business attorney.
This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a business attorney about your case Contact Us at (734) 743-1646 to schedule a consultation.
