Confused by what you've read about the Corporate Transparency Act?

You're not alone. Read on to learn what it is, who it applies to, what it will do, and the requirements for compliance.

What is the Corporate Transparency Act?

The Corporate Transparency Act was created to provide law enforcement with beneficial ownership information related to specific business entities to detect, prevent, and punish terrorism, money laundering, and other misconduct.

When does the Corporate Transparency Act take effect?

The Corporate Transparency Act will go into effect on January 1, 2024.

Reporting entities created before the end of 2023 will have until January 1, 2025, to file beneficial ownership information. For companies registered after January 1, 2024, the requirement for filing ownership information is 30 days after the proposed registration, but there are proposed regulations that would extend the reporting time to 90 days, with the 30-day reporting period not going into effect until January 1, 2025.

Which companies need to file beneficial owner information under the Corporate Transparency Act?

The Corporate Transparency Act applies to a variety of domestic reporting companies, including corporations, LLCs, LLPs, LLLPs, LPs, non-profit corporations, and business trusts, as well as any other entity that is created by the filing of a document with the Secretary of State or Native American tribe.

Any foreign company doing business in the US with a physical location in the US will also need to file ownership information under the Act.

What companies are exempt from filing under the Corporate Transparency Act?

There are 23 exemptions from the definition of "Reporting Company" in the Corporate Transparency Act. Companies in already heavily regulated industries, such as insurance, banking, financial brokerages, exchanges, clearing agencies, public accounting firms, political organizers, investment advisors, investment companies who pooled investment rewards, accountants, and Commodity Exchange Act registered agencies, are typically going to be exempt.

However, most importantly, large domestic corporations with at least 20 employees AND tax returns showing more than $5 million in gross receipts or sales will be exempt from the Act.

Are non-profits exempt from filing for the Corporate Transparency Act?

Various tax-exempt entities and entities assisting tax-exempt entities are also not required to report ownership information (tax-exempt entities are generally formed as non-profits). To be tax-exempt under the Corporate Transparency Act, the entity must be a 501(c) and exempt under 501(a) of the code.

Are Community Associations or Homeowners Associations exempt from filing with the Corporate Transparency Act?

Not at this time. Community Associations organized under 528 will be subject to the Act. Only Community Associations organized under 501(c)(4) or under 501(c)(7) will be exempt.

What is a "beneficial owner"?

For the purpose of the Act, the definition of a beneficial owner is an individual who directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise: exercises "substantial control" over a reporting company OR owns or controls 25% or more of the "ownership interests" of a reporting company.

What if my company is owned by a Trust?

Companies owned by a trust will have to report the name of the trustee and any beneficiaries designated more than 25% benefits. Essentially, anyone who has authority to dispose of trust assets.

What if the beneficiary of a trust is a minor? The parent or guardian information would be reported until the child reaches the age of majority.

What happens when changes in ownership happen in the ordinary course of business?

The Reporting Company has 30 days to file the updated report.

Who will be able to see the ownership information? Is this information public?

Beneficial ownership information submitted via the Act's portal will not be publicly available.

 Instead, the information will only be available to:

• The Federal Crimes Enforcement Network (FinCEN)
• Certain other law enforcement agencies with court approval
• Non-US law enforcement agencies, i.e., foreign governments
• Financial institutions and regulators with the consent of the reporting company

How much does it cost to file my business information under the Corporate Transparency Act?

There is no fee associated with filing.

How much will it cost if I decide not to file my business under the Corporate Transparency Act?

Willful reporting violations carry a $500 per day civil penalty; criminal violations are up to $10,000, or two years in prison. Unauthorized disclosure or use carries civil fines of $500 per day and criminal penalties of up to $250,000 or five years in prison or both. The fines start at $500 a day, up to $250,000 per day if the government finds you are trying to perpetrate a fraud.

What, exactly, will my company be required to report to the government under the Corporate Transparency Act?

Reporting companies will be required to share the legal name, trade name, DBA, taxpayer ID, and street address.

Beneficial owners will have to report their name, date of birth, residential street address, and valid state-issued photo ID (i.e., Driver's License or passport). The corporate street address for beneficial owners may NOT be used.

What should I do to file to be compliant with the Corporate Transparency Act?

FinCEN's filing system is currently under development and will not be available until January 1, 2024.

What if I am unclear on what I or my company should do now?

Please ask your business attorney for counsel. If you are unrepresented, we are accepting new clients and are assisting businesses with the issues surrounding filing for compliance with the Corporate Transparency Act.

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© 2023 Ward and Smith, P.A. For further information regarding the issues described above, please contact Adam M. Beaudoin or Matthew A. Jones.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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