The Corporate Transparency Act

The Corporate Transparency Act is a new federal law effective January 1, 2024 that may create additional reporting obligations for your company. While its title suggests it relates only to corporations, its reporting requirements apply to partnerships and limited liability companies and can affect trusts as well.

The Corporate Transparency Act (CTA) was enacted as a part of broader efforts to combat illicit activities, such as money laundering and financing terrorism. CTA imposes reporting requirements on certain types of entities to disclose their beneficial ownership information to the U.S. Financial Crimes Enforcement Network (FinCEN) from and after January 1, 2024. Failure to make the required filings may result in a civil fine of up to $500 for each day a report remains unfiled, and criminal penalties including fines up to $10,000, imprisonment for up to two years, or both.

The CTA contains a number of exemptions from its reporting requirements, most of which are for specific types of entities and certain activities, and we can help you understand if any of these exemptions might apply to your company. As an example of one CTA exemption, “tax-exempt entities” are not required to file. However, not all non-profit corporations are tax exempt, and these non-profits appear to be required to comply and file. Such non-tax-exempt non-profits would include Home Owners Associations and Condominium Associations, for example. Unless an exemption applies, all Reporting Entities, as defined below, will be subject to the new reporting requirements of the CTA, and we have summarized below some of the key provisions of the CTA you should know:

Reporting Obligations:

The CTA applies to domestic corporations, limited liability companies and other entities created by the filing of an organizational document with state officials, and also applies to certain foreign entities that register in the U.S. (collectively, Reporting Entities). A Reporting Entity will be required to file a report providing specific information about their beneficial owners, and to update that information whenever it changes. Beneficial owners are defined under the CTA as individuals who directly or indirectly own or control 25% or more of the ownership interests, or exercise substantial control over the entity.

Some of the reporting time frames have been revised recently and we continue to monitor them, however currently, Reporting Entities formed January 1, 2024 or later will have 90 days to make the required filing based on the current rules, while Reporting Entities in existence before that date will have until the end of 2024 to make the required filings. Beginning January 1, 2025 new Reporting Entities will have 30 days to make the required filing. Changes in the information that has been reported will require a new filing with FinCEN to report those changes within 30 days of the date of the change.

Note that if a trust qualifies as a beneficial owner due to the 25% interest or substantial control test, certain interested parties (trustees; settlors of revocable trusts; certain beneficiaries; and certain powerholders) will need to be reported to FinCEN. The ultimate determination of which individuals will need to be reported for the trust will vary on a case-by-case basis, depending on the terms of the trust, the rights of the beneficiaries, and the rights of the settlor, and we can help you make the determination.

Beneficial Ownership Information:

The CTA specifies the information to be reported for each beneficial owner, including full legal name, date of birth, current address, and unique identifying number, such as from a driver’s license or U.S. passport.

A beneficial owner who does not wish to provide his or her personal information to the Reporting Entity will be able to provide such information directly to FinCEN and obtain an identification number to provide to the Reporting Entity.

If a minor is a beneficial owner (in the case of a trust in which the minor is the sole beneficiary, for example), the information for the parent or guardian will need to be reported until the minor reaches the age of majority.

Applicant Information:

The CTA also requires certain information be reported for those individuals, referred to as applicants, who direct or control the filing of, and who actually file the documents to create the entity or register a foreign entity after January 1, 2024.

We are here to provide the guidance and support needed to help you understand and address this new law, and we look forward to working with you to help you assure compliance. We are available to work with you to confirm whether any exemptions might apply, to understand the information you will be required to gather and report, and to help you plan to ensure ongoing compliance. We believe it will be very important for someone in your company to understand the reporting and compliance requirements of the CTA, and we recommend scheduling a call or meeting to discuss your company’s specific circumstances so we may help you develop a compliance strategy.

Please note that some states have proposed, and are moving to enact, laws that piggy-back on the CTA reporting structure and that would impose additional reporting requirements to those states. If your company is qualified or registered to do business in other states, we can also discuss helping you understand how your company may be affected.

For more information or to discuss how the Corporate Transparency Act applies to your company, please contact your Meyer Capel attorney, or call the office at 217-352-1800 (Champaign) or 309-829-9486 (Bloomington).