Millions of small businesses will need to file electronic reports to comply with the Corporate Transparency Act (CTA) starting in 2024. While existing businesses will have the entire year to follow the federal government’s new requirements, startup businesses will have to report their identities and officers much sooner. Keep reading to learn more about which businesses will be affected by the CTA and how Business Docx® has been improved to help your clients file their reports.
Purpose of the Corporate Transparency Act
Congress passed the CTA in 2021 as part of the National Defense Authorization Act. Its purpose is to fight money laundering, tax fraud, and the funding of terrorism through shell corporations. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published rules in 2022 about which types of businesses must file CTA reports.
New businesses created or registered in 2024 will have 90 days to report their ownership information. Businesses that existed before 2024 will have until the end of the year to file their reports. Most types of companies will be required to report their information, including corporations, limited liability companies (LLCs), limited liability partnerships (LLPs), and business trusts.
As with most rules, the CTA has exceptions. There are 23 specific types of entities that are exempt from reporting, including companies that have 20 or more employees, companies with $5 million in annual revenue, publicly traded companies, banks, credit unions, insurance companies, and securities dealers. Many of these entity types are already regulated for the same purposes as the CTA.
Contents of a CTA Report
A CTA report will include information on the company and its beneficial owners and company applicants. A beneficial owner is anyone who owns at least 25 percent of the company or exerts substantial control over it. Exclusions to the definition of substantial control include minors whose parents or guardians have filed reports, as well as individuals whose control stems from their employment status or right of inheritance. A company applicant is the person who files the business entity’s creation documents, as well as the person who directs this action.
A CTA report will also include the following:
- Business address and tax identification number
- Individual names, addresses, and birthdates
- Individual identification numbers and a passport or driver’s license image
Information from a CTA report will not be available to the public; FinCEN will only disclose information to financial institutions, law enforcement, and government agencies for compliance and anti-money laundering purposes. Any changes to reported information must be provided to FinCEN within 30 days. Penalties for failure to file a CTA report will include civil fines of $500 per day and criminal fines of up to $10,000 and two years in prison.
2024 Developments
On Friday, March 1, 2024, in National Small Bus. United v. Yellen, Judge Liles C. Burke of the United States District Court for the Northern District of Alabama ruled via memorandum opinion that the Corporate Transparency Act (CTA)1 , enacted in 2021, is unconstitutional because Congress lacks the authority to require companies to disclose personal stakeholder information to the Financial Crimes Enforcement Network (FinCEN), the criminal enforcement arm of the US Department of the Treasury. [continue reading]
WealthCounsel Updates to Business Docx
Staying on top of CTA requirements is crucial to protecting your clients and avoiding malpractice exposure. Closely held companies, LLPs, and joint ventures often hold assets to structure clients’ wealth and can be an important part of an estate plan. WealthCounsel has updated 20 of its documents in its Business Docx software to help its members’ clients comply with their CTA obligations. To learn more about Business Docx and how it can help your business law practice, click here.
