After years of handling by Congress, new reporting requirements under the Corporate Transparency Act (CTA) take effect on January 1, 2024. Government officials and supporters of the bill claim it will help eradicate money laundering by nefarious businesses and business executives. For businesses that are conducting themselves morally, however, the law creates unnecessary extra work.
California businesses of all sizes need to understand and be prepared for new reporting requirements under the CTA before the beginning of the year. We explored the bill and found several key points business owners need to understand.
The Origin of the Corporate Transparency Act
Officials introduced and passed the CTA as a means to modernize anti-money laundering efforts. The law is actually embedded within the Anti-Money Laundering Act of 2020 which passed on January 1, 2021.
The intention of the CTA is to establish a national registry of business owners that fall into the “Reporting Company” category. A failure to report will result in steep penalties for businesses that are not granted an exception. This registry is to be maintained by the Financial Crimes Enforcement Network (FinCEN).
Who Qualifies as a “Reporting Company?”
Reporting companies are defined as any corporation, LLC, or other entity created by filing a document with the secretary of state or “similar office” in any state or territory, or with a federally recognized Native American tribe, or foreign entity registered to do business in the U.S.
Exceptions to the reporting requirements under the CTA include:
- Entities in an already-regulated industry with beneficial ownership reporting
- Nonprofits
- Government entities
- Private companies with 20 or more employees with at least $5 million in gross receipts on the most recent tax return with a physical office in the U.S.
- Public utility companies
- Publicly traded companies
- Banks, investment companies, investment advisers, credit unions, and some accounting firms
- Insurance companies subject to state regulation
- Subsidiaries of the above excluded entities
Reporting Requirements Under the CTA
If your company does not fall under these other exceptions defined by the law, you will be required to file beneficial ownership information with FinCEN. Beneficial owners include anyone who has any legal agreement or contract to exercise control over the entity and/or owns or controls at least 25% equity in the entity.
The information must be reported about each beneficial owner of a company which is often more than one person. Beneficial owners must report:
- Name
- Date of birth
- Residential or business address
- Unique identifying number from an acceptable identification document such as a state-issued ID
- Image of the acceptable identification document
The company itself must submit the legal name of the company, its principal address, state of formation, and IRS taxpayer identification number.
All of this information must be disclosed by January 1, 2025 – giving entities one year from the effective date of the CTA reporting guidelines to fulfill the necessary requirements. Companies that are formed after the effective date (Jan. 1, 2024) must report this information within 30 days of formation which is the standard for all new entities. Any changes to this information must be updated within 30 days of the change taking place.
Penalties for Non-Compliance
Failure to follow the requirements will result in fines of $500 per day the violation continues up to $10,000. Anyone that attempts to provide false information or refuses to report the information to the FinCEN faces up to two years in prison.The nuances of this law put businesses and people at risk of losing not just money but their freedoms. Our team has read through the bill and will help our clients fulfill the reporting requirements. If you have any questions or need help navigating the Corporate Transparency Act and its reporting requirements, contact the Law Offices of Tyler Q. Dahl.
Since the publication of this article, a federal judge in Alabama has ruled that the reporting requirements under the Corporate Transparency Act are unconstitutional. For more, read here: https://www.
Dahl Law Group
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