On January 1, 2021, a new federal law called the Corporate Transparency Act (CTA) became law. The CTA requires almost all LLCs, PLLCs, for profit corporations, limited partnerships and other entities created by filing a document with a state to file a report with the Financial Crimes Enforcement Network (“FinCen”) of the U.S. Treasury that discloses information about the entity, its beneficial owners and the person who filed the entity’s formation document with its formation state.
Warning: If you are an owner of a U.S. company you need to read the article on our Corporate Transparency Act website to learn if your company must file a report with FinCen to avoid a $500/day non-filing penalty. Companies created after 2021 have two weeks from their formation date to file the report, but FinCen has not yet created a way for companies to file the report. Companies created before 2022 have one year from the date the CTA regulations become effective to file the report.
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How the CTA Affects Your Entity
Here is a brief summary of the CTA:
- All reporting companies must report to the U.S. Treasury’s Financial Crimes Enforcement Net (FinCen) certain required information about the companies’ beneficial owners and its applicant. See the definition of reporting company and the list of companies that are not reporting companies.
- All reporting companies formed after December 31, 2021, must report the required information to the FinCen shortly after the company is formed. We won’t know the reporting deadline until the CTA regulations are finalized.
- All reporting companies formed before January 1, 2022, must report the required information to FinCen not later than two years after the U.S. Treasury finalizes the CTA regulations. The regulations have not been proposed or finalized.
- Almost ALL existing companies and companies formed in the future are or will be reporting companies that must report the required information to FinCen. See the definition of required information.
- A beneficial owner is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity. See the definition of beneficial owner.
- The following is the required information about each beneficial owner and applicant that the reporting company must report to FinCen: (i) full legal name, (ii) date of birth, (iii) current, as of the date on which the report is delivered to FinCen, residential or business street address; and (iv) the unique identifying number from the beneficial owner’s or applicant’s acceptable identification document or the beneficial owner’s or applicant’s FinCEN identifier number. See the definition of required information.
- A reporting company that violates the CTA shall be liable to the United States for a civil penalty of not more than $500 for each day that the violation continues or has not been remedied; and may be fined not more than $10,000, imprisoned for not more than 2 years, or both.
- If you have a reporting company you must read my article called “What to Do Now.” This article explains the actions reporting companies need to take now to prepare for the January 1, 2022, effective date of the FinCen reporting requirement.
- To stay up to date on the CTA and its regulations get a free subscription to our CTA newsletter.