By: Justin Powell
Posted: March 14, 2024

Introduction

The Corporate Transparency Act is a new law which requires almost all small businesses to report certain information to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Department of the Treasury. It does not matter whether your company is active or dormant (with a minor exception, which an analysis should be done by your attorney to determine if your inactive entity meets such exemption), you still need to report to FinCEN unless your company meets one of the exemptions. Although named “Corporate Transparency Act”, the act covers entity types beyond Corporations, and includes Limited Liability Companies (LLCs) and Limited Partnerships.

Timeline

Companies which were formed prior to January 1, 2024 have (as of the date of this blog posting) until January 1, 2025 to file their initial report with FinCEN. A reporting company formed after January 1, 2024 has 90 days from the date of formation to file its initial report with FinCEN. Fortunately, the reporting is free, and there is not an annual report requirement. Companies need to update their report only when Reported Information (as defined below) changes. Upon those changes, the companies have 30 days to update the report with FinCEN.

Exemption

One of the most popular reporting exemptions will be for large operating entities. To meet the large operating entity exemption, the company must meet all of the following: 1) have annual revenue in excess of $5,000,000; 2) have more than 20 full time employees; and 3) have a physical location in the United States where operations are regularly conducted. There are other exemptions available, but are much less common.

Reporting Information

Reporting to FinCEN requires certain information about the individual company owners and the company itself. We are recommending to our clients that each company owner, and any other person required to report, obtain individual FinCEN Identifiers. This will make updating information for the individuals more efficient.

For an individual to obtain a FinCEN Identifier, they will need to create a Login.gov account, and then using that account login to the FinCEN database. The individuals need to provide their legal name, address, a photocopy of an approved identification (such as a driver license or passport), and the approved identification number. The approved identification must be effective and not expired. We are requiring owners of new entities to provide their FinCEN Identifiers prior to filing formation documents with the applicable secretary of state.

For company reporting, the company needs to report the company’s legal name, state of organization, tax identification number, jurisdiction, principal place of business address (not a P.O. Box), if formed in 2024 or after, the Company Applicants (as defined below), and the Beneficial Owners (as defined below).

Beneficial Owners and Company Applicants

The Company Applicants are the individuals who determine what is put into the filing that is filed with the secretary of state (such as the attorney who determines what the Articles of Organization should state), and the individual who actually submits the filing with the secretary of state. The Company Applicant may be one or two people depending on the situation. Note, for companies formed prior to 2024, no Company Applicant is needed.

Beneficial Owners are those who own at least 25% of the equity in the company. This could be an individual or an entity. A Beneficial Owner could also be an individual that owns less than 25% of the company (or has no equity at all) if the individual exhibits substantial control of the company.

Potential Penalties

The penalties for willfully failing to report or willfully reporting inaccurate information are very steep. These include monetary penalties up to $10,000 and/or the possibility of imprisonment for up to two years.