12.15.2023 | Client Alerts

The Corporate Transparency Act Goes into Effect January 1, 2024

On January 1, 2024, the federal Corporate Transparency Act (“CTA”) will take effect. It mandates new reporting requirements for millions of businesses operating in the United States. Congress passed the act to prevent money laundering and other illicit activities. However, the CTA’s impact is far-reaching as it requires qualifying companies to report identifying information regarding the legal entities themselves, their beneficial owners, and the “company applicant.”

Online form for reporting

All reports will be made through an online form provided by the Financial Crimes Enforcement Network (“FinCEN”), a division of the Treasury Department. FinCEN has not yet provided the form but has indicated that it will be available on its website once it accepts reports on January 1, 2024. FinCEN is authorized to share the information with law enforcement and financial institutions.

Reporting requirements

The CTA requires qualifying companies to report their (1) full legal name; (2) any trade names; (3) a complete and current address, meaning the street address of their principal place of business (or, for foreign entities, the street address of their primary location in the U.S.); (4) the state, tribe, or foreign jurisdiction of formation (or, for a foreign company, the state or tribal jurisdiction where the company first registers); and (5) the IRS taxpayer identification number (or, for foreign companies, a tax ID number issued by the foreign jurisdiction and the name of that jurisdiction).

Reporting companies

A “reporting company” under the CTA can be either a domestic or a foreign company. A domestic reporting company is a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or any similar office in the United States. A foreign reporting company is any entity formed under the law of a foreign country that has registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

Reporting exemptions

The CTA provides 23 categories of exemptions. Even if your company qualifies as a “reporting company,” you may be exempt from reporting to FinCEN. For example, there is a “large company exemption,” which exempts entities if: (1) the entity filed a federal tax or information return showing aggregate gross sales or receipts greater than $5 million; (2) the entity has 20 full-time employees in the United States; and (3) the entity has an operating presence at a physical office within the United States.

Disclosure of beneficial owners

Reporting companies will also be required to disclose their “beneficial owner information,” meaning that any individuals who directly or indirectly exercise substantial control over a company or own or control not less than 25% of the company must provide (1) their full legal name; (2) their date of birth; (3) their current residential address; and (4) a unique identification number provided on either an unexpired passport, driver’s license, or other similar forms of identification approved by FinCEN’s guidelines.

Reporting by entities formed before January 1, 2024

Reporting companies created before January 1, 2024, will have one year from the effective date to file their initial report.

Reporting by entities formed between January 1, 2024 and January 1, 2025

Reporting companies created between between January 1, 2024 and January 1, 2025 will have ninety (90) days to file their initial report.

Reporting by entities formed on or after January 1, 2025

Reporting companies created on or after January 1, 2025 will have thirty (30) days to file their initial report.

Reporting by company applicants

The CTA also requires that the company applicants must provide the above information. Company applicants are individuals who either apply to form a corporation, LLC, or other similar entity or the individual who was directly responsible for, or in control of, the filing of the first registration document for the reporting company.

Penalties, fines, and imprisonment

Failure to comply with these new requirements invites steep penalties. Reporting violations by any person may result in civil penalties up to $500 per day, fines up to $10,000, and two years imprisonment. Unauthorized disclosure or use of reported information may result in even more draconian penalties, fines, and incarceration. Compliance with the CTA is mandatory.
Please contact us at Bernkopf if you want further guidance on your CTA reporting requirements. We will be pleased to assist you in navigating the compliance requirements.

Richard B. Michaud may be reached by email at rmichaud@bernkopflegal.com or by phone at 617.790.3435.

Zoe Krey may be reached by email at zkrey@bernkopflegal.com or by phone at 617.790.3457.

ABOUT THE AUTHOR

Zoe Krey

Associate

Zoe Krey is an associate in Bernkopf's litigation department, known for her meticulous attention to detail and strong commitment to client success. Her legal understanding, shaped by experiences at Boston University School of Law and as a General Legal Practice Intern, reflects her passion for advocacy and justice.

ABOUT THE AUTHOR

Richard B. Michaud

Partner

Richard Michaud is a seasoned trial attorney with expertise in civil and criminal litigation across various courts, including district, superior, and appellate courts. His diverse practice encompasses business litigation, real property, employment law, and zoning matters, underpinned by substantial experience in prosecuting and defending criminal cases.