The Corporate Transparency Act is a new federal law, effective January 1, 2024, requiring that certain business entities file reports regarding the personal information of their owners. This law applies to both existing entities and those formed in the future. Reports must be filed with the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCen”). The intent is to provide law enforcement with ownership information for the purpose of detecting misconduct through business entities.

Note that the information will not be public, but FinCen is authorized to disclose it under certain circumstances.

Find answers to six key questions about the new law below:

1. Why should I comply?

Significant monetary penalties and jail time may be enforced for failure to comply. A person (including directors, officers and other principals) may be liable to the U.S. for up to $500 per day or imprisonment for up to two years, or both.

2. What is the general rule?

A Reporting Company, absent an exemption, must file information regarding the Reporting Company, its Beneficial Owners and their Company Applicants.

• “Reporting Company” – means a corporation, LLC or other similar entity that is (i) created by filing with a secretary of state or similar office; or (ii) formed under the law of a foreign country and registered to do business in the United States. Note the numerous exemptions discussed below.
• “Beneficial Owner” – means an individual who, directly or indirectly, (i) exercises substantial control over the entity; or (ii) owns/controls at least 25% of such entity’s ownership interests. It does not include certain minor children, persons acting on behalf of another (e.g., nominees, intermediaries), persons who are purely employees of the entity, persons whose ownership is through a right of inheritance, or certain creditors of the entity.
• “Company Applicant” – means an individual who files the application , or directs or controls the filing of such application, to form or otherwise register a Reporting Company.

3. When should I file?

For a pre-existing Reporting Company, the first report is due by January 1, 2025.

For a Reporting Company formed in 2024, the first report is due within 90 days of the formation of such entity. And for a Reporting Company formed in 2025 the first report is due within 30 days of the formation of such entity.

4. What are the exemptions?

The Corporate Transparency Act includes 23 exemptions, generally grouped into the following categories:

• Entities that (i) have at least 21 employees, (ii) filed Federal tax returns last year showing $5M in gross receipts or sales in the aggregate, and (iii) have a U.S. operating location.
• Certain non-operating entities that hold no assets.
• Certain registered investment companies and advisors.
• Public utilities.
• Registered public accounting firms.
• Entities having governmental authority.
• Certain banks and their holding companies, credit unions, and other money transmitting businesses.
• Certain registered broker dealers.
• Certain issuers of securities.
• Insurance companies and certain insurance producers.
• Certain financial market utilities.
• Certain nonprofits, political organizations, and trusts, and the owners thereof.

5. What information must be disclosed?

A Reporting Company that doesn’t qualify for an exemption must include the following in its report: (i) full legal name, (ii) all trade names or DBAs, (iii) current U.S. address, (iv) jurisdiction of formation, (v) employer identification number, and (vi) information regarding its Beneficial Owners and Company Applicants.

The information regarding Beneficial Owners must include the following: (i) full legal name, (ii) date of birth, (iii) current residential or business address, and (iv) either a unique identifying number from an acceptable identification document or FinCen identifier number. Note there are minor nuances for certain Beneficial Owners such as exempt entities and certain pooled investment vehicles.

6. What if a Reporting Company’s information changes?

No later than 30 days following the date of change, the Reporting Company must submit a report that updates the information relating to the change.