Hey, small business owners! You may have heard about the Corporate Transparency Act (CTA), and if you haven't, that's OK because I'm going to break it down in a way that makes sense for you.
What is the Corporate Transparency Act?
The Corporate Transparency Act was enacted to combat financial crimes, such as money laundering, and aims to grant more transparency in the corporate world.
Congress passed this law requiring owners of entitles such as LLCs and corporations to disclose exactly who owns their business to the Financial Crimes Enforcement Network (FinCEN).
Does this apply to my LLC?
Short answer: probably yes.
While there are limited exemptions for some entities, for the most part it appears that practically all LLCs will have to register their ownership.
What are the reporting requirements?
Under the CTA, businesses are required to file a "beneficial owner information report" with FinCEN including their "beneficial owners" and the identities of the persons who formed their entity.
Beneficial owners are defined as owners who have significant interest or control in the company or those who own 25% of the ownership interests.
So, for example, if you are a single-member owner of your LLC, 100% ownership is obviously significant and you would likely be considered a "beneficial owner" under the CTA.
What type of information is collected?
1. Beneficial Owner Information: Full Name - The legal names of individuals considered beneficial owners. Date of Birth - The birth dates of the beneficial owners. Residential Address - The addresses where these individuals may be contacted.
2.Unique Identifying Information + Picture ID: Government-issued identification, such as a state issued driver's license or your passport is collected. And not only do you have to provide the ID #, you must upload a copy of the ID with photo.
3. Applicant Information:
If your LLC was formed after January 1, 2024, applicant information will also be collected.
So if someone created your LLC on your behalf, it's possible that their information will be required as well (even though they are not an owner).
How often do I have to report my information?
Luckily, so far it appears that it is just an initial registration and then you only have to update that info on the FinCEN website if something changes.
For example, if you add a member to your LLC or change your address, you need to update that info on FinCEN.
What is the deadline to file a beneficial owner report?
If your company existed before January 1, 2024:
File the 1st beneficial ownership information report by January 1, 2025.
If your company was created or registered on or after January 1,2024 and before January 1, 2025:
File the 1st beneficial ownership information report within 90 calendar days after receiving offical notice that the entity is created.
If your company was created or registered on or after January 1, 2025:
File the 1st beneficial ownership information report within 30 calendar days after receiving notice that the entity is created.
What happens if I don't comply?
It's not pretty. You can tell they really want compliance from business owners when you look at the penalties prescribed for non-compliance.
Here are the potential penalties for failing to comply with the Corporate Transparency Act:
Civil Penalties: Civil penalties can go up to $500 per day for each day the violation continues.
Criminal Penalties: This may include fines and imprisonment for individuals who intentionally violate the law.
Administrative Remedies: FinCEN has the authority to impose additional administrative remedies, including requiring the submission of correct or additional information to remedy non-compliance.
As you can see, the severity of the penalties demonstrates the government's interest in corporate transparency to curb financial crimes.
Is this extra step of FinCEN registration a bit inconvenient? Yes.
Would I rather not have my personal info uploaded on yet another site? Definitely.
But, here we are. Due to some bad actors, we all need to show that things are on the up and up in our business. So be sure to register, if required, and keep your info updated.
***Note that the above is not legal or business advice. It is taken from the FinCEN website. Work with your legal counsel directly for information about how CTA affects your business specifically.
In the meantime, stay informed, stay compliant, and keep propelling your small business to new heights!
This blog posting is provided for general informational and educational purposes only and is not provided for specific, individual legal advice.