Recently, the United States congress passed the Corporate Transparency Act. This act requires U.S. corporations and limited liability companies (LLCs) to disclose their beneficial owners. This legislation will go into effect January 1st of 2024, an upcoming and consequential change for American business owners. Let’s take a closer look at the Corporate Transparency Act and what it means for business owners and legal clients.
What is the Act?
The Corporate Transparency Act, more officially known as Title LXIV of the Anti-Money Laundering Act of 2020, (itself which is Division F of H.R.639), was signed into law on January 1, 2021. The law requires corporations and LLCs to report the identities of their “beneficial owners.” A beneficial owner is defined by the legislation as any individual who hold at least a 25% ownership interest in the company, or who otherwise exercise “substantial control” over the company. The intent behind these requirements is to increase transparency in corporate ownership and prevent criminals from laundering money, financing terrorism, or engaging in other illicit activities using American companies.
The law will apply to all new corporations and LLCs formed after the effective date, as well as to existing companies. Not only this, but businesses will need to update beneficial ownership information as soon as changes are made. There will be some exceptions, however, including publicly traded companies, certain financial institutions, and government agencies.
What are the Implications of the Act?
The Corporate Transparency Act will have several implications for business owners and legal clients. First, it will require many companies to spend time and resources gathering and reporting ownership information. This may be a burden for some small businesses. Second, it will give law enforcement agencies access to a large database of corporate ownership information. This information may be used while investigating suspected financial crimes. Finally, it will provide additional protections for whistleblowers who disclose information about corporate wrongdoing.
The CTA goes into effect on January 1st, 2024 and requires “beneficial owners” of “small businesses” (less than 500 employees) to report their personal information to the Financial Crimes Enforcement Division of the Department of Treasury (FinCEN). Beneficial owners are identified by the CTA as individuals who exercise substantial control over a registered entity (i.e., LLC or Corporation), own 25% or more of the registered entity, or receives substantial economic benefits from the assets of the registered entity.
Per the new law, these “beneficial owners” are required to report the following information to theFinancial Crimes Enforcement Division of the Department of Treasury (FinCEN):
- Full Legal Name
- Date of Birth
- Current Residential Address
- Unique identifying number from an acceptable for of Identification (such as a passport or driver’s license)
- Current address of the company business
For existing businesses, this information is required to be submitted to FinCEN no later than January 1st, 2025. New Businesses that form after January 1st, 2024, have 30 days after receiving notice the creation or registration of the new company is effective to report to FinCEN.
Everyone is required to update any changing information, within 30-days of the change. This includes things such as updating your address, should you move, or your name should you marry and change your name. This also includes, of course, changes to ownership information of the company, address changes should the company move or expand into other states, and more.
Ownership information is to be submitted via a website that is unavailable as of the date of this article, but FinCEN states, “This system is currently being developed and will be available before your reports must be filed.”
For those few folks that know about the CTA, all sorts of privacy concerns are already being raised. In New Mexico, one of the few states that permits “Anonymous LLC’s,” the CTA is particularly troublesome. After all, Anonymous LLCs are helpful in many ways. For example, they permit abuse victims, stalking victims and other folks who have a legitimate reason to limit access to their personal information on the Internet, to enjoy the benefits of owning a company, without fear of being targeted by their former abuser. Anonymous LLCs also allow business owners some privacy. For example, landlords who are contacted directly by their tenants instead of those calls going to property managers. Then of course there are the endless amounts of spam and cold calls that are clogging up every business owner’s email boxes, voice mail boxes and post office boxes. Anonymous LLCs are tremendously helpful in all these legitimate situations.
Fortunately, the CTA has legal requirements to keep the information they are collecting private and confidential. The information will not be available on the Internet or for the public to view. Therefore, Anonymous LLCs in New Mexico will not be experiencing any changes. The protections that “Anonymous” businesses benefit from won’t change with the new law. Essentially, the CTA requires business owners to give personal information about themselves in connection to their business. The fact of the matter is that the IRS and banks already have this information. The new law simply is placing the “beneficiary ownership” information in a place that can be easily stored, updated, and shared with various branches of law enforcement so they can better fight crime.
Law 4 Small Business (L4SB) is a law firm dedicated to the needs of small business and has taken it upon itself to educate and assist small business owners with the issues of the CTA. L4SB will be taking the time to send out information about the law to all its clients, and it is working with other organization who help small businesses as well to get the word out. There is no reason for legitimate business owners to be concerned. It is simply an “electronic form” to fill out. What does greatly concern L4SB is (1) business owners receiving bad information or worse, no information at all on this new law, and (2) business owners making mistakes or forgetting when or how to report.
With the possibility of daily fines and jail time, no one wants to find out they have missed deadlines or misunderstood the intent of the law.
Here is what we suggest business owners do: First, stay on top of the law. Mark on your calendar the January 1st deadline and keep yourself updated with the reporting process as it develops. Remember, the website that will be used to report is not live yet. Remind yourself that anytime your personal information changes, i.e. your address, you need to update the website. Don’t make a knee jerk decision to dissolve your entity simply to avoid reporting. This could seriously hurt you in the future. Lastly, relax. As stated, this is information the government already has. It won’t change your business or how you run it. The government is simply asking you to fill out yet another another form.
Should business owners have questions about the CTA and how it pertains to their business, they should reach out to a competent business attorney. It important to make sure that attorneys selected to consult with regarding CTA have read the law and understand the reporting process. As always, business owners are invited to reach out to Law 4 Small Business and follow its blog as it will be posting information around the Corporate Transparency Act as it becomes available. L4SB.com will also be publishing several tools to help business owners understand when to report, to send out automatic reminders, and to help business owners consult with attorneys when they have questions.
Do you have specific concerns about the Corporate Transparency Act and your business? Schedule a consultation with one of our attorneys today.