In less than two weeks, on January 1, 2024, the Corporate Transparency Act (CTA) will become effective. This new law is one of the most wide-reaching and disruptive pieces of legislation affecting businesses that has been adopted in years. In short, the CTA will impose, for the first time, reporting obligations on the vast majority of businesses, both foreign and domestic, operating in the United States.

The CTA is part of the Treasury Department's efforts to curb financial crime and money laundering. It requires that certain entities disclose “beneficial ownership” information to the Financial Crimes Enforcement Network (FinCEN), an arm of the Treasury.

Unlike many other compliance rules that target larger, publicly traded or otherwise heavily regulated companies, the CTA applies to businesses of all sizes (including smaller, privately held companies), as well as certain of their owners and principals. As one would expect, the CTA will apply to entities formed on or after January 1, 2024. However, it also applies to entities in existence prior to January 1, 2024.

Does the CTA Apply to Me or My Company?

Both individuals and companies must consider whether the CTA applies to them. In general, the CTA applies to the following parties, subject to certain limited exemptions and exceptions:

• Reporting Companies – Entities formed in the United States, as well as foreign entities registered to do business in the United States, that do not otherwise qualify for one of the 23 exemptions provided by FinCEN.
• Beneficial Owners – Individuals who either:
  • Exercise “substantial control” over a reporting company; or
  • Own or control at least 25 percent of the “ownership interests” of the reporting company.
• Company Applicants – Individuals who sign and submit the documents necessary to form an entity in the United States or register a foreign entity to do business in the United States, in either case on or after January 1, 2024.

Filing Deadlines

The deadline for a reporting company to file the initial report required by the CTA will depend on the date of the reporting company’s formation or registration. Those deadlines are:

What to Report:

Information Required for Reporting Companies

1. The company’s full legal name;
2. Any company trade or “doing business as” names;
3. The street address of the company’s principal place of business in the United States (or, if not applicable, the street address of the primary location in the United States where it conducts business);
4. The company’s jurisdiction of formation or, for a foreign reporting company, the jurisdiction in which it first registers to do business in the United States; and
5. The company’s IRS taxpayer identification number (TIN) or, for a foreign reporting company that has not been issued a TIN, a foreign tax identification number and name of the issuing jurisdiction.

Information Required for Beneficial Owners and Company Applicants

1. The individual’s full legal name;
2. The individual’s date of birth;
3. The individual’s current residential street address or, for a company applicant who forms or registers the reporting company in the course of such individual’s business, the individual’s business street address;
4. A unique identifying number and issuing jurisdiction from a non-expired U.S. passport, state or local identification document, driver’s license or foreign passport; and
5. An image of the document from which the unique identifying number was obtained.

(NOTE: A reporting company or individual beneficial owner or company applicant may also obtain a FinCEN identifier (a FinCEN ID) from FinCEN and submit the designated FinCEN ID in lieu of the information otherwise required.)

Updates and Changes

If there is any update or change with respect to required information previously submitted to FinCEN concerning a reporting company or its beneficial owners, including any change with respect to who is a beneficial owner or information reported for any particular beneficial owner, the reporting company must file an updated report within 30 calendar days after the date on which the change occurs. Reporting companies are not required to update previously reported information about their company applicants. However, reporting companies will be required to correct any inaccurate information previously reported about their company applicants.

If any report was inaccurate when filed and remains inaccurate, the reporting company must file a corrected report within 30 calendar days after the date on which the reporting company becomes aware or has reason to know of the inaccuracy.

Civil and Criminal Penalties for Failure to Comply

It is unlawful for any individual or reporting company to willfully fail to report complete or updated beneficial ownership information to FinCEN or willfully provide false or fraudulent information. Violators are subject to a civil penalty of up to $500 for each day the violation continues, and criminal fines of up to $10,000, imprisonment for up to two years, or both. The CTA also imposes penalties for the unauthorized disclosure of information.

[View source.]