As the clock rolled over to January 1, 2024, the requirements for businesses to make Beneficial Ownership Information filings also went live. For the last few weeks of 2023, many people who wanted to start a business were considering whether they were going to formalize their business before the January 1, 2024, deadline. If your business was formed prior to that deadline, you have until the end of 2024 to do your Corporate Transparency Act filings.
For companies that are formed after January 1, 2024, FinCen (the Financial Crimes Enforcement Network) has set up a page for filings and has included some basic information on
If you are thinking of setting up a company, the CTA adds additional filing for many companies that we previously did not need to file. So if you're getting started on your business journey, it's important to understand who needs to do a CTA filing (and who is exempt), what you need to disclose, and when you need to make your CTA filings.
Who Needs to File under the CTA?
The CTA applies to both foreign companies and domestic companies. These companies are created when you incorporate your company with your local state or when you've got a foreign company that registers to do business in a state. Some common types of businesses that are affected are:
- LLP's (Limited Liability Partnerships)
- Business Trusts
- Limited Partnerships
There are exemptions in the law for banks, governmental authorities, and securities issuers, and there can be other exclusions as well. It's important to work with your professional advisors to determine if your business is affected.
Exceptions to the Reporting Company Requirements
The definition of a Reporting Company is a broad definition, including any corporation, LLC or other similar entity that is created and registered with a state in the United States. This definition can also include foreign companies that are registered to do business in the United States. With such a broad definition, many companies are concerned about whether the CTA applies to them.
However, the CTA also contains 23 exceptions:
- Securities reporting issuer
- Governmental authority
- Bank
- Credit union
- Depository institution holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- An investment company or investment adviser
- Venture capital fund adviser
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company
- Subsidiary of certain exempt entities
- Inactive entity
If you were to lay out all of the exception companies, you would see that the majority of companies that are not exceptions are going to be small and medium sized businesses. Even the large businesses have a specific exception, #21 "Large operating company" that includes companies that:
- Employ more than 20 employees on a full-time basis in the United States;
- Have at least $5 million in gross receipts in the previous year on its tax returns; and
- Has a physical office within the United States.
What Needs to Be Disclosed under the CTA
The primary purpose of the CTA is to disclose who the "Beneficial Owner" of a business is. There are two categories of individuals who are treated as a Beneficial Owner:
- Exercises substantial control over the company; or
- Owns/controls at least 25% of the company.
For owners who fall into either of these categories, they must report to FinCEN:
- Name
- Date of Birth
- Address
- Unique Identifier Number (from your local jurisdiction and a copy of the document needs to be submitted as well)
These filings need to be done by the owner who has filed the documents that formed the company with the state or the individual who is in charge of filing the documents by someone else on their behalf. It's important to understand who is authorized to make these filings before they are completed.
When Do I Need to File under the CTA?
The CTA went into effect on January 1, 2024. If your business was incorporated before that date, then you have 1 year to make your CTA filings. If you form your business after January 1, 2024, you've got 90 days from when you receive notice that your business has been formed.
If you form your business after January 1, 2025, the current regulations require you to make your CTA filings within 30 days of formation. Also, if you have changes to your beneficial ownership, you've got 30 days to file the updates with FinCEN.
Do I Need a Business Attorney?
Now is a good time to get up to date on your CTA requirements, so if you'd like to discuss them further, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.
