By: Austin Stevenson
A few years back, Congress passed the Anti Money Laundering Act of 2020 and the National Defense Authorization Act for Fiscal Year 2021, within which was another act: the Corporate Transparency Act (“CTA”). The CTA, broadly speaking, is an attempt to expand US anti-money laundering laws, in order to further prevent the financing of terrorists, corruption, tax fraud, and other illegal activity.
You may be thinking “well none of those things apply to me”, and while that may be correct, the CTA itself very likely does apply to you or effect you if you own a small business in the United States. This is the first in a series of articles about the CTA, who it affects, what it requires, and who may be exempt.
At a very high, general level, the CTA requires, beginning on January 1, 2024, “Reporting Companies” to report to FinCEN certain information about the “Beneficial Owners” of the Reporting Companies, and for companies created after January 1, 2024, also information regarding their “Company Applicant”.
Generally speaking, a Reporting Company is a corporation, limited liability company, or any other similar entity that is created by the filing of a document with a secretary of state or a similar office under the law of a state, or a foreign entity formed under the law of a foreign country, and registered to do business in any U.S. state or tribal jurisdiction. A company can be a Reporting Company regardless of whether it was formed before January 1, 2024, and unlike many other federal laws, small companies—even single member LLCs—are not provided with an exemption based on size. This means that business owners’ baseline assumption should be that the CTA applies, regardless of the company’s size, unless an exemption is met.
Beginning on January 1, 2024, Reporting Companies will be required to report to FinCEN certain information about the Reporting Company, such as its legal name, address, jurisdiction of formation, any assumed names, and its tax ID number.
Reporting Companies also must report certain personal information (including, for example, their name, birthdate, and other identifying information) of their Beneficial Owners, defined as anyone who (1) directly or indirectly exercises substantial control over the Reporting Company, or (2) owns or controls at least 25% of the ownership interests of the Reporting Company.
Reporting Companies created on or after January 1, 2024 will have 30 days from the date the Company is created to report the required information, and existing Companies will have until January 1, 2025. While there are exemptions available, the CTA is specifically intended to regulate small, previously unregulated companies, and thus most of the exemptions will not cover the majority of small operating companies.
Our next article will discuss in more detail who is a Beneficial Owner, who is a Company Applicant, and what information must be reported by each and every Reporting Company. If you have questions about the CTA or corporate and business services, feel free to contact Austin Stevenson at RAStevenson@strausstroy.com , or 513-768-9745.