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In 2021, the Corporate Transparency Act (“CTA,” codified at 31 U.S.C. § 5336, et seq.) was passed in a bipartisan effort to reduce financial crimes like money laundering and misuse of COVID-19 relief funds. The CTA imposed a requirement on corporations, LLCs, and other business entities to file a report called the Beneficial Ownership Information Report. This reporting requirement is now in effect.

FinCEN is the U.S. Department of Treasury’s Financial Crimes Enforcement Network. Pursuant to the CTA, FinCEN oversees the Beneficial Ownership Information Reports and ensures that the information is only disclosed to federal, state, and local agencies for certain authorized activities related to law enforcement.

Who is affected?

All applicable businesses, called “reporting companies” by the CTA, are subject to the reporting requirements. The CTA defines a domestic reporting company as “any entity that is (A) a corporation; (B) a limited liability company; or (C) created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.”

Despite this sweeping definition, not all businesses are required to file a report. There are currently 23 exemptions from the reporting company definition, which mainly include entities that are already subject to regulation (including, for example, banks, large operating companies, publicly traded companies, and tax-exempt entities).

What information must be disclosed?

Information about the reporting company that must be disclosed includes:

  1. The legal name of the company,
  2. Any trade names or “DBA’s”,
  3. The street address of the company, and
  4. The company’s EIN.

In addition, FinCEN mandates the disclosure of the ownership of each reporting company. A beneficial owner is any individual who (A) exercises substantial control over a reporting company or (B) owns or controls at least 25 percent of the ownership interests of a reporting company. All beneficial owners are required to provide:

  1. Their full legal name,
  2. Date of birth,
  3. Residential address, and
  4. An ID number from an unexpired state ID or passport (and a photocopy of the ID)

For many people, determining the ownership of their company is relatively straightforward. However, for owners of entities that have subsidiaries, affiliates, and complicated ownership structures, this task can seem daunting. In either case, it may be helpful to speak with an attorney about your company’s beneficial ownership.

Individuals who file the documentation to create or register a business, or who control or direct such filing (“company applicants”), are required to provide the same identifying information as the beneficial owners. The company applicant requirement only applies to businesses created on or after January 1, 2024.

When must the report be filed?

Businesses formed on or after January 1, 2024, have 90 days from the date of registration or creation to file an initial report.

Businesses formed before January 1, 2024, have one year (until January 1, 2025) to submit their initial report.

Any change to the information in the initial report must be reported to FinCEN within 30 days of the change. This includes actions such as appointing new officers, changes to a beneficial owner’s information, or any changes to the reporting company (including registering a DBA or trade name).

Don’t Wait Until It’s Too Late!

With the new CTA requirements now in effect, the clock is ticking to file your report. Failure to meet the reporting deadline can result in both civil and criminal penalties. Business owners should not wait to contact an experienced corporate attorney for assistance. Our corporate team at Tuggle Duggins can help determine reporting company status and beneficial ownership to comply with the new federal laws.

For more information, please contact Natalie Folmar at NFolmar@tuggleduggins.com or 336-271-5220 or Madison Boyer at MBoyer@tuggleduggins.com or 336-271-5254.

© 2024 Tuggle Duggins P.A. All Rights Reserved. The purpose of this bulletin is to provide a general summary of significant legal developments. It is not intended to constitute legal advice or a recommended course of action in any given situation. It is not intended to be, and should not be, relied upon by the recipient in making decisions of a legal nature. Moreover, information contained in this bulletin may have changed subsequent to its publication. This bulletin does not create an attorney-client relationship between Tuggle Duggins P.A. and the recipient. Therefore, please consult legal counsel before making any decisions or taking any action concerning the issues discussed herein.

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