A Business’s Requirements Pursuant to the Corporate Transparency Act in 2024

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  2. A Business’s Requirements Pursuant to the Corporate Transparency Act in 2024

Legally reviewed by:
King Law
December 28, 2023

The Corporate Transparency Act (“CTA”) creates the Reporting Rule which requires certain entities to file information concerning beneficial ownership in the organization to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). The CTA is a bipartisan legislative initiative passed by Congress in 2021, which stands for the United States’ commitment to combatting the misuse of shell companies and enhancing financial transparency. In other words, the United States is looking to put a stop to the Corleone Family, the Sopranos, and any Russian Oligarch that wishes to transfer money without little to no trace throughout the United States.

The CTA places requirements on companies, including small businesses, to report the required information or face fines of a maximum of $10,000.00 or two (2) years in prison. For the hardworking, small business owner, any lack of knowledge of the obligations or lack of comprehension of what or when to Report can lead the business owner to face penalties. This article aims to provide a comprehensive guide to businesses in 2024 for navigating the intricacies of the CTA, focusing on key questions and answers that encapsulate its essence. This guide does not constitute legal advice. You should contact King Law Offices to obtain legal advice concerning your particular situation.

What is the Reporting Rule?

Section 6403 of the CTA provides for a standard of the disclosure requirements. FinCEn implemented Section 6403 in its September 30, 2022 decision to create what it calls the “Reporting Rule.” See 87 Fed. Reg. 59498 (Sept. 30, 2022). The Reporting Rule describes what Companies must report, what information the Companies must provide, and when the Companies must file the reports.

What Companies Must Report?

The scope of reporting companies encompasses every company except for twenty-three (23) entity types and various factors concerning activities and revenue. These exemptions span various categories, including securities reporting issuers, governmental authorities, banks, and nonprofit organizations. Understanding these exemptions is crucial for reporting companies to tailor their compliance efforts. However, the general rule is, that if the organization has (1) at least one “owner,” (2) the organization has less than twenty full-time, US-based employees, and (3) has less than five million in domestic gross receipts, then the organization must report.

What Must Companies Report?

Every organization that is required to report must identify its “Beneficial Owners.” A Beneficial Owner is any individual who: (1) Substantially controls the Reporting Company OR (2) owns at least 25 percent of the reporting company. In layman’s terms, an individual who owns 10 percent of the reporting company but acts in the role of chief executive officer, meaning they manage the day-to-day operations of the reporting company. Additionally, even if the organization is owned and operated by an angel investor who does not work directly with the organization, then their identifying information must be reported to the FinCEN.

Additionally, every reporting company is required to report its company applicants if the company is registered domestically on or after January 1, 2024, or is a foreign reporting company that first registered to do business in the United States on or after January 1, 2024.

Under the CTA, access to beneficial ownership information is carefully regulated. Authorized entities include Federal, State, local, and Tribal officials, along with certain foreign officials who submit requests through U.S. Federal government agencies. Financial institutions also gain access under specific circumstances, ensuring a balance between transparency and confidentiality.

When must Companies file the Reports?

The reporting process under the CTA follows a structured timeline. Notably, no company is required to report beneficial ownership information until January 1, 2024. Reporting deadlines vary based on a company’s creation or registration date. Companies created before January 1, 2024, have until January 1, 2025, to file their initial reports. The timeline shortens for companies created or registered after January 1, 2024. FinCEN’s active engagement with reporting companies ensures a smooth transition into the new reporting landscape.

Come January 1, 2024, FinCEN will open its doors to beneficial ownership information reports. This information will be submitted electronically through a secure filing system available on FinCEN’s website.

One of the notable features of the reporting process is that there is no fee associated with submitting beneficial ownership information. This reinforces the idea that compliance with the Act is not a financial burden for reporting companies.

The Act provides flexibility in designating authorized filers. Anyone authorized by the reporting company, including employees, owners, or third-party service providers, may file a beneficial ownership information report. This approach recognizes the varied structures of reporting companies and ensures that those filing reports are well-versed in the company’s dynamics.

How Can King Law Help?

As the Corporate Transparency Act heralds a new era of corporate accountability, reporting companies must proactively engage with its provisions to ensure compliance. As the January 1, 2024, reporting deadline approaches, companies are urged to leverage available resources, seek professional guidance where necessary, and embrace the spirit of transparency that underlines this transformative legislative initiative.

King Law Offices, PC is there to help guide you through compliance with the FinCEN so that you do not face possible penalties such as monetary penalties or two years of imprisonment. We at King Law Offices, PC, encourage you to make an appointment with one of our professionals to formulate your plan. Call (888) 748-KING (5464) or fill out our consultation form today.

Legally reviewed by:
King Law
Carolina Attorneys
December 28, 2023

This blog post has been reviewed and verified by legal experts at King Law. Our team is dedicated to providing premium legal services with compassion, innovation, trust, and advocacy. Serving Western North Carolina and Upstate South Carolina, we offer flexible meeting options and strive to exceed client expectations with high-quality legal representation and exceptional client relationships.

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