The Corporate Transparency Act was enacted in 2021 and went into effect on January 1, 2024. The law was intended to make it harder for bad actors to hide assets through shell companies. Under the law, companies must report to the US Treasury’s Financial Crimes Enforcement Network (FinCen) information about their business and disclose certain information about “beneficial owners”, who are those individuals with substantial control over the company, or those individuals who own at least 25% of the company. For companies who were formed after January 1, 2024, individuals who filed documents to incorporate the company with a Secretary of State must also submit information as “company applicants”.
Information to be provided about the company include name, address, and EIN number, and information to be submitted about beneficial owners include their full legal name, date of birth, complete current home address (for company applicants business address is sufficient), a unique identifying number (ex. State Driver’s license number), and an image of either a US passport or State Driver’s license.
Unless otherwise falling into 23 exemptions, existing companies must register with FinCen no later than January 1, 2025. For companies formed between January 1, 2024, and January 1, 2025, companies have 90 days after incorporating to submit their registration information. For companies formed after January 1, 2025, registration shall be required within 30 days of incorporation. Exemptions are limited and most closely held businesses, limited liability companies, and professional services firms will need to comply. The one notable exemption to registration is for tax-exempt entities.
Currently, there is no provision for annual registration. However, any time there is a change about a company’s beneficial owners, the company must update its previously filed report with FinCEN within 30 days of the change. For example, if a beneficial owner’s home address changes, that would trigger a reporting requirement. Importantly, failure to comply with the Corporate Transparency Act comes with stiff penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties of up to two years in prison and or a fine of up to $10,000.
If you have questions regarding the Corporate Transparency Act, and how it impacts your business, contact one of our attorneys today.
