Most of you have never heard of the Corporate Transparency Act. That’s because it doesn’t go into effect until next year (2024). It’s a new law so the government can know more about you and your businesses.
In other words, big brother is getting bigger.
The government is requiring you to disclose more information about which businesses you own, and if you don’t, you will owe the government big time – i.e., crazy penalties!
I’m going to tell you what you need to know, so you keep your nose clean and not get in trouble with the government.
- What is the Corporate Transparency Act?
- What is a Reporting Company?
- Who is a Beneficial Owner?
- What am I reporting to the Government?
- When must I report by?
- What are the penalties for not filing?
What is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act (CTA) was passed into law in 2021 which requires “reporting companies” (defined below) to submit information to FinCEN (Financial Crimes Enforcement Network) about who the beneficiary owners of the company are.
That may sound gibberish to you, so simply put – the government wants to create a database of all companies formed in the USA and who the owners are.
Congress says they created this law to stop shell companies from money laundering and tax fraud. That may be true, but it’s also another way big-brother (and little-brother-municipalities) can access the information about you & your companies at any time regarding who owns what.
There are two important things you need to know to see if you’re subject to the CTA. They are Reporting Companies and Beneficial Owners.
What is a Reporting Company?
A Reporting Company is a company that must file a report to FinCEN starting in 2024. The definition of a Reporting Company is very broad and includes the following entities:
- Single Member LLCs
- Foreign Corporations
- Limited Partnerships
- Limited Liability Partnerships
So, if you own any one of the entities listed above, you will probably need to report your company to FinCEN. However, there are a few exceptions.
Companies that don’t need to report are:
- Sole Proprietorships – since they don’t file legal paperwork to become formed.
- General Partnerships (except in Delaware)
- Banks, investment funds, credit unions, insurance companies,
- Large Businesses*
- Publicly Traded Companies
- Publicly Traded Partnership
- 501(c)3 non-profit organizations
There are more exempt companies, but these are the most common ones.
*What is a Large Corporation that doesn’t need to Report?
Any company that has over 20 full-time employees, makes over $5 million a year, and has a physical presence in the U.S.A. (i.e. brick and mortar locations).
In other words, if you own a small business, you will need to file a report with FinCEN and tell them who the Beneficial Owners are.
Who is a Beneficial Owner?
The CTA defines a Beneficial Owner as:
- People that own or control 25% or more of a company
- People that exercise substantial control over a company, even if they own less than 25% of the company.
They didn’t define what substantial control is, so if you’re unsure, it’s safer to list that person as a Beneficial Owner.
What is Being Reporting to the Government?
You will need to report the name & address of company, the Beneficial Owner’s personal information, and information about the firm you are hiring to help you file the Report.
The Beneficial Owner’s Information that must be reported is:
- Legal Name
- Date of Birth
- Current residential address (no PO Boxes)
- Passport or Driver’s License number
- An Image of the Passport or Driver’s License you are submitting
When do I have to Report by?
That depends on if you created your company before or after 2024.
If you Created Your Company before 2024
You will have one year to file your reports to FinCEN (1/1/2024 thru 12/31/2024)
If you Created Your Company in 2024 or after
You will have 90 days after you created your company to file your report with FinCEN.
What Happens to Me if I Don’t Report?
Penalties, Penalties, Penalties!
Your penalties for not filing a report to FinCEN is $500 per day that it’s late, up to $10,000 maximum (per entity you don’t file.) They can also charge you with criminal negligence, if they can prove it’s intentional, which can lead to up to 2 years in prison. Yikes!
The CTA is bothersome, bureaucratic, and not without its hassles. It’s another law that places significant burdens on small business owners. As always, I’m here to inform you so you don’t get in trouble with the government and you’re one step ahead.
Note: I will be updating this article as more information from FinCEN is released about the CTA, how to file, and what you’ll need to know.