The federal government will institute new reporting requirements for millions of businesses, including small businesses, starting January 1, 2024. Because of the breadth and potential impact of this law for small companies, we will be publishing from now until the end of 2023 a series of posts highlighting the major features of the Corporate Transparency Act (CTA).
What the CTA Requires
“Reporting companies” covered by the CTA must file a report with the Financial Crimes Enforcement Network of the Treasury Department (FinCEN) identifying their “beneficial owners” (BOs) unless the company is exempt from reporting under the CTA. We anticipate that most small, privately-held businesses will have to determine whether they are covered by the CTA, and whether they qualify for an exemption. The 23 exemptions in the law are largely intended to cover companies that are highly regulated or report similar information to the federal government already, e.g., certain investment and financial services entities; thus, we expect that many if not most small entities will be required to report.
The BO report must identify certain key/senior personnel associated with the company, including their contact details and some form of specified photo ID. After that, the company must update its BO report if any BO or relevant company information changes. There is no requirement for regular (e.g., annual) updated filings.
If you are covered by the law and do not qualify for an exemption, there are two deadlines to know:
- Companies already in existence before 1/1/2024 will have a year to file their BO report.
- Companies formed starting on 1/1/2024 and after will have 30 days to file their BO report (although FinCEN has proposed extending this to 90 days).
Why It Matters
Most companies will have made similar disclosures to their banks in connection with opening bank accounts or applying for credit, but this is the first time the federal government will collect identifying and ownership information directly from reporting companies. The intent of the law is to make BO information available in connection with FinCEN's law enforcement activities. FinCEN intends to make its database of BO information available to other law enforcement agencies as well. The database and BO information are not intended for release to the general public, however.
Another important note is: Failure to report (or inaccurately reporting) can result in civil and criminal penalties for covered individuals and for the company itself.