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Introducing the Corporate Transparency Act

business owners at table

Attention, California business owners!

This article will introduce the Corporate Transparency Act, which will begin new requirements for business owners doing business in the United States starting January 1, 2024.

The new requirements are for companies in one of two categories of business operations: (i) domestic; and/or (ii) foreign entities.

A domestic entity is a corporation, limited liability company, or any entity created by registering with the Secretary of State of a state within the United States of America (for example, California) or any similar office under the laws of a state or Indian tribe and operating solely within the same state or territory.

A foreign entity is a corporation, limited liability company, or other entity formed under the laws of a foreign state or country that is registered to do business in a different state or tribal jurisdiction from the state of original registration. For example, an entity originally formed and registered in Delaware may also be registered to do business as a foreign entity in California.

Companies will be required to report their information to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury. FinCEN will permit federal, state, local, and tribal officials, as well as certain foreign officials, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.

Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company.

While the rules for access and handling of information are still being developed, beneficial ownership information reported to FinCEN will be stored in a secure, non-public database using security methods and controls typically used in the Federal government to protect non-classified yet sensitive information systems at the highest security level.

As a note, the reporting requirements do not include a fee for submission at this time, and can be submitted electronically through a secure filing system soon to be available via FinCEN’s website.

The reporting requirements for all entities will include:

Company information required to be reported:

  • Company name
  • Company address
  • Tax ID
  • Place of formation

Beneficial owner and company applicant information to be reported:

  • Full legal name
  • Date of Birth
  • Residential address
  • Accepted form of ID

A “beneficial owner” is defined as any individual who, directly or indirectly, either: (i) exercises substantial control over a reporting company, or (ii) owns or controls at least 25% of the ownership interests of a reporting company.

A “company applicant” can only be (i) the individual who directly files the document that creates the entity, or the document that first registers the entity to do business in the United States or (ii) the individual primarily responsible for directing or controlling the filing of the relevant document by another.

There are also some deadlines for reporting:

  • For companies formed or registered before January 1, 2024, reports must be filed by January 1, 2025.
  • For companies formed or registered on or after January 1, 2024, reports must be filed within ninety (90) days of filing the formation documents with the state or similar authority on or after January 1, 2024.
  • For entity changes, reports must be updated within thirty (30) days of a change to the beneficial ownership or thirty (30) days upon becoming aware of or having reason to know of inaccurate information previously filed. An example of such change would be the sale of a business, merger, acquisition, or death of a beneficial owner.

Failure to comply with the above deadlines may result in a penalty of $ 500.00 per day until the report has been filed.

Cat Mineo, along with the other business attorneys of JRG, is available and prepared to assist your business with these new requirements.

Be prepared early, and contact JRG Attorneys At Law to ensure your business remains compliant with the Corporate Transparency Act.