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The New Corporate Transparency Filing Requirements You Need To Know

December 15, 2023

Own or operate a business?  Business owners and those who make important decisions for a business need to know about a new law coming into effect next year, the Corporate Transparency Act. Being a new law, many of the requirements are complicated and sometimes vague. Great care should be taken, as failing to file, or even filing incorrectly, could result in substantial fines, imprisonment, or both. 

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a part of the National Defense Authorization Act enacted on January 1, 2021, to assist law enforcement efforts against money laundering, terrorism, drug trafficking, and other illegal activities through creating more transparency in business entities. 

Who must do it? 

The CTA requires “reporting companies” to provide information on individuals who are the “beneficial owners” and the “company applicants” of the entity. The “company applicant” is simply an individual that either filed the document that created the entity or an individual that directed another to file said document, but, unlike the “company applicant” the definitions of “reporting company” and “beneficial owners” are incredibly broad. 

“Reporting company” encompasses most entities that are formed by filing a document with the Secretary of State. However, there are many exceptions to this rule, including large companies, inactive entities, many financial institutions, and certain nonprofit companies. 

The term “beneficial owners” is a misnomer. While it does encompass those that own 25% or more of a company, it also includes those that exercise “substantial control” of the company or receive “substantial economic benefits” from the entity.

When does the CTA take effect? 

The CTA goes into effect on January 1, 2024. Entities formed prior to that date will have a year to file their initial report. Entities formed on or after January 1, 2024, however, will have thirty (30) days from the date of creation to file their report, subject to certain safe-harbors for those entities created in the calendar year of 2024. Additionally, reporting companies will have the continued obligation to amend incorrectly reported information and update information if it changes, such as ownership, addresses of owners, and any other information that was initially reported. 

What are the penalties for failing to report under the CTA? 

An individual who willfully fails to report or reports inaccurate information may be subject to civil and criminal penalties, including fines of up to $500 per day, $10,000 per violation, and up to two years in prison, per violation. As a result, it will be important for reporting companies to capture valid and accurate information as to who their beneficial owners and company applicants are to satisfy their reporting obligations under the CTA.

How will the reported information be used? 

The information will be used to create and maintain a national registry of the identities of individuals who directly or indirectly own or control a company. The information collected will be stored in a secure private database and will not be available to the public. Law enforcement agencies and financial institutions are the only entities that will have access to the database on a limited basis. 

What steps should be taken now? 

Overall, the rules regarding whose information will have to be reported are complex and broad, but the team at Black McCuskey has diligently researched the statute to assist clients with this new reporting requirement. Business entities and their beneficial owners should begin preparing for CTA compliance now. 

We recommend reaching out to the experienced business attorneys at Black McCuskey for assistance with the CTA and its reporting requirements and how it may apply to you and your entities.

Questions? Contact us at: Corporate Practice Group

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