A new law will go into effect on January 1, 2024, that will affect most small business owners in the United States. Congress recently passed the Corporate Transparency Act (CTA) to help U.S. law enforcement stop criminal organizations from using shell and front companies to launder money. When the CTA goes into effect on January 1, 2024, it will require corporations, LLCs, and similar entities registered in or doing business in the U.S. to disclose information to a bureau of the U.S. Treasury Department called the “Financial Crimes Enforcement Network” (FinCEN). This information will help FinCEN identify entities run by criminal organizations and stop them from doing business in the U.S.
The CTA is specifically targeted at stopping organizations in Russia and other foreign countries from using the corporate structure to do business in the U.S. while avoiding sanctions. But it will make it harder for all types of criminal and illicit organizations to do business in the U.S. This blog post will explain the new disclosure requirements small businesses will have to follow to comply with the CTA.
Small businesses will have to disclose two things to FinCEN once the CTA goes into effect. First, they must disclose each “beneficial owner” of the business. A beneficial owner is any person that owns more than 25% of the company or exercises substantial control over it. This disclosure must include the beneficial owners’ name, birthdate, address, and an image of the owners’ identification (like a passport or driver’s license). And businesses will need to file an updated disclosure report within 30 days after any of this information changes. Second, they must disclose the business’s “company applicant.” The company applicant is the person responsible for filing the incorporating documents that created the company.
Numerous types of large entities are exempt from these disclosures, including governmental authorities, banks, credit unions, insurance companies, public utilities, tax-exempt entities, and companies that employ more than 20 full-time employees in the United States. Subsidiaries of any of these entities are exempt as well.
The CTA’s disclosure requirements will go into effect January 1, 2024. Existing companies will have one year (until January 1, 2025) to file their reports. But companies created or registered after January 1, 2024, will have only 30 days to file their reports after receiving notice of their company’s creation or registration. FinCEN anticipates it will cost companies with simple management and ownership structures approximately $85 apiece to prepare and submit an initial beneficial ownership report.
This post has laid out only the most basic things small businesses should be aware of about the CTA before it goes into effect. A business attorney can explain the CTA’s requirements in greater detail, and help you understand everything you will need to do to comply with the CTA. If you would like to learn more about the CTA and what it will mean for your business, contact McNeelyLaw today to speak with one of our Indiana business attorneys. Our experienced team of attorneys can assist you with all of your business needs.
This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.