{"id":7738,"date":"2021-08-18T11:58:48","date_gmt":"2021-08-18T15:58:48","guid":{"rendered":"https:\/\/ericperkinslaw.com\/?p=7738"},"modified":"2021-08-18T11:58:48","modified_gmt":"2021-08-18T15:58:48","slug":"the-corporate-transparency-act-and-its-effect-on-small-businesses","status":"publish","type":"post","link":"https:\/\/ericperkinslaw.com\/the-corporate-transparency-act-and-its-effect-on-small-businesses\/","title":{"rendered":"The Corporate Transparency Act and its Effect on Small Businesses"},"content":{"rendered":"
On January 1, 2021, the Corporate Transparency Act (the \u201cCTA\u201d) was enacted as a part of the National Defense Authorization Act. As a result, certain U.S. business entities will soon be required to file a report with the U.S. Treasury Department\u2019s Financial Crimes Enforcement Network (\u201cFinCEN\u201d) to disclose identifying information of their beneficial owners. <\/span><\/p>\n An estimated two million corporations, limited liability companies (\u201cLLCs\u201d), and other types of business entities are formed under state law in the United States each year. While the overwhelming majority are legitimate businesses pursuing lawful activities, there unfortunately are many \u201cmalign actors\u201d who seek to conceal their ownership of business entities for the purpose of facilitating illegal activity. The reporting requirements under the CTA are expected to help protect national security interests, interstate and foreign commerce, and counter the financing of terrorism. <\/span><\/p>\n While the objectives of this new law are admirable, you may be left wondering how this will affect your small business. Here are a few key provisions of the CTA that you should be aware of:<\/span><\/p>\n Who is a reporting company<\/span>?<\/span><\/strong><\/p>\n The CTA defines a \u201creporting company\u201d as a corporation, LLC, or other similar entity created by filing a document with a secretary of state or similar state office under state law. Each reporting company must disclose certain identifying information related to its beneficial owners.<\/span><\/p>\n What information must be reported<\/span>?<\/span><\/strong><\/p>\n Reporting companies must list each beneficial owner\u2019s full legal name, date of birth, current residential or business street address, and unique identifying number (e.g., passport, license, or FinCEN identifier). <\/span><\/p>\n Who is a beneficial owner<\/span>?<\/span><\/strong><\/p>\n A beneficial owner is an individual who directly or indirectly (i) exercises substantial control over the reporting company or (ii) owns or controls not less than 25% of the ownership interests of the reporting company.<\/span><\/p>\n Who is exempted<\/span>?<\/span><\/strong><\/p>\n The reporting requirement is limited by exemptions that include the following:<\/span><\/p>\n What happens if I don\u2019t report<\/span>?<\/span><\/strong><\/p>\n There are civil and criminal penalties for the willful failure to provide accurate beneficial owner information. Any person who willfully fails to provide accurate beneficial owner information (or fails to report such information at all) may be subject to civil penalties of up to $500 per day for every day the violation continues. In addition, a person may also be subject to criminal penalties that include a fine of up to $10,000, up to 2 years imprisonment, or both.<\/span><\/p>\n Thankfully, there is a safe harbor that allows an individual to avoid these penalties if she voluntarily submits corrected information within 90 days after the date of submission unless the person knowingly filed false beneficial owner information with the intent of evading the reporting requirements.<\/span><\/p>\n When Will I Have to Start Reporting<\/span>?<\/span><\/strong><\/p>\n The Treasury must issue regulations regarding the CTA by January 1, 2022. Upon the effective date of the regulations, the beneficial reporting requirements will also be effective. Reporting companies that exist at such time must file their reports within 2 years of the effective date of the regulations. And reporting companies formed after the effective date of the regulations must file the report upon the formation of the entity.<\/span><\/p>\n All reporting companies must file a report within one year of the beneficial ownership information changing. Changes that trigger this reporting requirement include (i) a change in substantial control of the reporting company, (ii) a change in contact details for a beneficial owner or applicant, and (iii) beneficial ownership exceeding or dropping below 25%.<\/span><\/p>\n Things We Don\u2019t Know at This Time<\/span><\/strong><\/p>\n Prior to the adoption of the implementing regulations, there are many questions we simply cannot address and must wait for the regulations. For example, we do not know exactly where and how the filing will be made. Perhaps the filings will be made electronically directly to FinCEN or at the state level. These and other details will be fleshed out in the regulations.\u00a0 <\/span>Stay tuned for further updates.<\/span><\/p>\n\n
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