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Shocking Facts About the New Corporate Transparency Act

By: Heather Ward, Esq. November 17, 2023 no comments

Shocking Facts About the New Corporate Transparency Act


Today, we’re diving into the Corporate Transparency Act (CTA), specifically the Beneficial Ownership Information Reporting, which comes into effect on January 1st, 2024.

The Corporate Transparency Act
The CTA, instituted in 2021 by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), aims to combat money laundering, tax fraud, and terrorism facilitated by shell companies. The focus of our discussion is on the Beneficial Ownership Information Reporting, a significant aspect set to commence on January 1st, 2024.

Who Needs to Report? Any domestic or foreign entity conducting business in the U.S. and filing documents with the Secretary of State or equivalent state entity is considered a reporting company. While certain exemptions exist, approximately 30 million existing entities and 2 million new entities annually will be affected. Exemptions include tax-exempt organizations, some inactive entities, and large operating companies meeting specific criteria.

Understanding Beneficial Owners
Beneficial owners, individuals or corporations with substantial control or ownership interests of at least 25%, must be reported. Substantial control encompasses high-ranking officers and decision-makers, while ownership interests include equity, stocks, voting rights, and convertible assets. The reporting requirement applies to every beneficial owner, and all relevant details must be disclosed, raising concerns about privacy and security.

Company Applicants
Entities formed after January 1, 2024, must report a company applicant, the person filing the documents with the state. This requirement introduces complexities, as the definition of involved parties remains unclear.

Reporting Information
Detailed company information, including trade names, U.S. addresses, and Taxpayer Identification Numbers (TINs) or Employer Identification Numbers (EINs), must be provided. For each beneficial owner and company applicant, full name, date of birth, residential address, and a copy of a valid identification document must be submitted.

Implementation and Compliance
The reporting period begins on the official or public notice date of entity creation or registration. Applications must be submitted electronically, with a 30-day compliance window for entities formed on or after January 1, 2024. While concerns about security and potential penalties exist, the process offers a 90-day grace period for corrections.

Preparing for Changes
We emphasize the need for proactive planning and staying informed about updates. Considerations include potential changes to operating agreements, exploring alternative structures such as trusts or new entity types, and establishing systems for tracking modifications.

The Corporate Transparency Act introduces significant changes, raising concerns about privacy, security, and compliance. As a law firm, we are committed to assisting our clients through this process and staying abreast of developments. For further assistance, contact us at Legacy Legal Team, where our team of attorneys is ready to address your specific needs and concerns.

Remember, January 1, 2024, marks the beginning of a new reporting era—be prepared!

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