Corporate Transparency Act

November 13, 2023  | By Erik Lincoln

The Corporate Transparency Act created a requirement for a “reporting company” to report certain information (including its “beneficial owners” and “company applicants”) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). 

Is your company a “reporting company”, that must report its “beneficial owners” and “company applicants” to FinCEN?

Almost all small business entities formed in the U.S., by filing a formation document (e.g., Articles of Incorporation for a corporation, Articles of Organization for an LLC, etc…) with a secretary of state (or similar office), will be considered a reporting company. Entities formed in U.S. territories are also subject to these rules.  Further, foreign entities that register to do business in the U.S. (or its territories) may be considered a reporting company.

Even if your business entity might otherwise be a reporting company, there are 31 exceptions to the reporting requirement. This includes certain entities considered large entities.  To be considered a large entity, six requirements must be met, including that the entity generates more than $5m in gross sales. Many of the other exceptions relate to licensed businesses (e.g., banks, accounting firms, insurance companies, etc….).

Who is a beneficial owner?

A beneficial owner is any individual who exercises substantial control over an entity (e.g., manager of an LLC, officer of a corporation, etc….), or who owns or controls at least 25 percent of an entity (directly or indirectly).

Who is a company applicant?

There can be up to two individuals who qualify as a company applicant: (1) the individual who directly filed the document that creates, or first registers, the reporting company; and (2) the individual that is primarily responsible for directing or controlling the filing of the relevant document.

An entity is only required to report its company applicants if it is created or registered on or after January 1, 2024.

What information does a reporting company need to report?

A reporting company will need to provide: (1) its legal name and any trade name; (2) its address; (3) the jurisdiction in which it was formed or first registered, depending on whether it’s a U.S. or foreign company; and (4) its Taxpayer Identification Number (TIN).

A reporting company will also need to provide the following information for each individual considered a beneficial owner (see above) and each company applicant (see above): (1) legal name; (2) birthdate; (3) address (in most cases, a home address); and (4) an identifying number from a driver’s license, passport, or other approved document for each individual, as well as an image of the document that the number is from.

When and how should a company report beneficial ownership information to FinCEN?

Any reporting company created or registered before January 1, 2024, you have until January 1, 2025, to file an initial report. But reporting companies formed after January 1, 2024, will need to report their information within 30 calendar days of receiving actual or public notice from the state’s secretary of state or similar office that the entity was created or registered.

FinCEN is not yet able to accept beneficial ownership information. But it has said that it will accept reports electronically beginning January 1, 2024.

If any information reported to FinCEN changes, you would need to report those changes within 30 days.

What are the potential consequences of not complying?

If the necessary information is not reported to FinCEN a civil penalty of $500 per day may be assessed.  Further, criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000 are possible.

If you need help with reporting, please contact one of our business law or tax attorneys.

Erik Lincoln is a founding member of Lincoln. In addition to being an attorney he is also a CPA. Erik has consistently been recognized as one of the top attorneys in North Carolina, by Business North Carolina.