The Corporate Transparency Act (CTA) was signed into law on January 1, 2021 as part of the 2021 National Defense Authorization Act. This law mandates that both domestic and foreign legal entities must submit a report to the Financial Crimes Enforcement Network (FinCEN), a division of the Department of Treasury. The report must include personal information about the entities' individual beneficial owners and applicants. The purpose of this requirement is to prevent corrupt actors, terrorists, and criminals from laundering money in the United States.

Even though the Corporate Transparency Act was enacted in 2021, it is set to officially take effect on January 1, 2024. The initial filing deadline for any reporting company that exists or is registered before January 1, 2024 is not until January 1, 2025.

In the meantime, businesses impacted by this new regulation, often referred to as "reporting entities," can proactively begin planning and preparing for compliance with the Corporate Transparency Act. This guide will help you determine what steps your company should take now to prepare for the reporting requirement to come into effect.

Determining Whether Your Business Needs to Submit Reports According to the Corporate Transparency Act

According to the new regulation, only entities classified as "reporting companies" are mandated to submit a report. A reporting company encompasses any legal entity that meets the following criteria:

• Established through the submission of a document with the secretary of state or a comparable office under the laws of a State or Indian Tribe.
• Created under the laws of a foreign country and registered to operate in the United States by submitting a document with a secretary of state or similar office under the laws of a State or Indian Tribe.

These parameters encompass, but are not limited to, corporations, LLCs, most partnerships, certain trusts, and other similar entities.

Identifying Whether Your Business Meets the Requirements for an Exemption According to the Corporate Transparency Act

Within the legislation, every entity is categorized as a "reporting company" unless an exemption is applicable. The Corporate Transparency Act delineates 23 exemptions for reporting companies, which predominantly pertain to "large operating entities." In this context, "large entities" are defined as businesses with a physical presence in the United States that possess both more than 20 full-time employees and more than $5 million in gross receipts or sales in the previous fiscal year, as reported to the Internal Revenue Service. Additionally, the exemptions encompass entities already subject to substantial state or federal regulation, such as insurance companies, banks, and publicly traded companies.

Please note: If the company qualifies for an exemption, it is not considered a reporting company under the CTA and therefore is not obligated to adhere to the reporting requirements.

Determining Your Entity's Beneficial Owners and Applicants

Entities classified as a "reporting company" are mandated to furnish FinCEN with personal identifying details regarding their beneficial owners and company applicants. Consequently, once you have confirmed that your company is a non-exempt "reporting company," you may initiate the process of identifying your beneficial owners and company applicants.

A beneficial owner is defined as any individual who directly or indirectly exerts significant control over the reporting company or holds at least 25% of its ownership interests. For a domestic reporting company, a company applicant refers to any person who submits the document that establishes the entity. In the case of a foreign reporting company, the company applicant is any individual who submits the document to initially register the company for conducting business. In both scenarios, the proposed regulation specifies that individuals directing or controlling the filing of the relevant document by others would also be considered company applicants.

Collecting the Necessary Information

Upon identifying your beneficial owners and company applicants, the subsequent step involves acquiring the personal information about these individuals, which is essential to report to FinCEN. 

Additionally, you will need to gather information about the reporting company itself. Let's delineate the required information in both scenarios.

Personal Information of Beneficial Owners and Company Applicants

Four pieces of essential information are required for each beneficial owner and company applicant:

1. Full name
2. Date of birth
3. Current residential address
4. Unique identifying number from an acceptable document (such as a passport, state ID card, or driver’s license)*

*Note: The reporting company must provide an image of the identification document, displaying both the identifying number and a photograph of the person.

Regarding the unique identifying number, beneficial owners and company applicants can choose to acquire a FinCEN identifier, a distinctive number designated by FinCEN to an individual. If a beneficial owner or company applicant obtains a FinCEN identifier, it is included in the report in lieu of the unique identifying number.

Information of the Reporting Company

Five necessary pieces of information are required for the reporting company:

1. Company’s full name
2. Any trade or doing business as (DBA) names
3. Business’ street address
4. Date of formation (for domestic companies only)
5. First date of registration (for foreign companies only)
6. IRS Taxpayer Identification Number, DUNS numbers, or legal entity identifier

*Note: The reporting company can also choose to acquire a FinCEN identifier by submitting an application with or after the initial report.

Establishing a Document Tracking System

Now that you have gathered all of the required information, it’s wise to create a system for tracking all your documentation until the Corporate Transparency Act officially goes into effect. Once the CTA takes effect, existing reporting companies will have one year to file the initial report. Entities formed on or after the regulation’s effective date will have only 30 days to submit their first reports. Additionally, any updated data will have to be reported within 30 days of the change, and errors must be corrected within 14 days of discovery.

By using a centralized document tracking system, like EntityKeeper, you can quickly manage and access your business entities and compliance documents and data in real-time. And when the reporting period officially begins, you can locate all of your information with ease.

By planning and preparing for the Corporate Transparency Act to take effect, your organization can confidently comply with the new regulation and ensure that you meet the filing deadlines. An entity management solution, like EntityKeeper, can further streamline your processes to ensure ongoing compliance

To learn more about: Financial Crimes Enforcement Network and Beneficial Ownership, Click on the link:

https://www.fincen.gov/boi 

FAQs:

https://www.fincen.gov/boi-faqs#B_1