By Rolando Garcia, CPA, JD – Shareholder

Enacted on Jan. 1, 2021, the Corporate Transparency Act (CTA) has brought about new owner reporting requirements that will impact small privately owned businesses organized in the United States.

Designed to create an added level of transparency to help prevent the use of U.S. “shell” companies engaging in money laundering or other criminal funding activities, the CTA mandates individual beneficial owners of corporations, limited liabilities and similar entities be reported to the federal government.

As set forth in the CTA, more than 2 million entities are formed annually under state law. Most states do not require identification of owners of these entities. While complying with the CTA will not be an issue for businesses not involved in the above illicit activities, many have legitimate privacy concerns, especially family groups, start-ups and foreign investors.

Who Is Required to Comply?

All reporting entities that are corporations, limited liability companies or similar entities that were either:

  • Created by the filing of a document with the Secretary of State or a similar office under the laws of a State or Indian Tribe; or
  • Formed under the laws of a foreign country and registered to do business in the United States by the filing of a document with a Secretary of State or a similar office under the laws of a State or Indian Tribe.

Some entities, such as banks, credit unions, investment advisors, brokers/dealers, insurance companies and charitable organizations are exempt from the reporting requirement. Businesses with more than 20 employees and $5 million in sales that have a physical presence in the United States are also exempt.

Information to Be Reported

Applicable entities must submit the following information about each of their beneficial owners to the Financial Crimes Enforcement Network (FinCEN):

  • Full legal name
  • Address
  • Date of birth
  • Form of unique identification number, such as a driver’s license or U.S. passport number.

Beneficial owners are considered to be any individuals with substantial control over the entity, who own at least 25% of the entity or receive substantial benefits from its assets.

All information will be placed on a confidential registry maintained by FinCEN.

Filing Deadline

CTA reporting requirements have not yet been announced. Regulations must be issued by the Secretary of Treasury no later than Jan. 1, 2022.

Stay Tuned

Doeren Mayhew will keep you up-to-date on CTA reporting requirements once formal regulations are announced. Questions on how this may impact your business? Contact our CPAs and advisors today.