Do you own or manage a small business? If so, then your next question should be, “Am I prepared for the Corporate Transparency Act?” (or perhaps, “What IS the Corporate Transparency Act?”)
Beginning January 1, 2024 (the “Effective Date”), almost all small businesses, including corporations, partnerships, and limited liability companies, will be required to disclose certain information to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Congress enacted the CTA to prevent financial crimes and promote corporate transparency.
There are a handful of essential steps that you can take now to make the compliance process less stressful come January 1:
- Identify: For your existing entities, determine your “beneficial owners” and “company applicants”. In general, a beneficial owner is anyone who either (a) owns, directly or indirectly, more than 25% of the interests in your entity, or (b) exercises substantial control over the entity (including for example, senior officers, or a person that has approval over major decisions). A company applicant includes the person that formed the entity and persons who are primarily responsible for directing or controlling such filing.
- Collect: Begin to gather the beneficial owner and company applicant information that you’ll need to provide to FinCEN. This data includes such person’s (a) full legal name, (b) date of birth, (c) business - and for beneficial owners, residential - address, and (d) unique, non-expired identifying number, such as from a driver’s license or passport (you will also need an image of this document). Alternatively, beneficial owners and company applicants can provide you with their unique number received from FinCEN (i.e., their FinCEN ID).
- Establish: Develop internal protocols to ensure timely compliance with the CTA’s reporting requirements. Entities created prior to the Effective Date must file their initial reports with FinCEN by January 1, 2025. Entities created on or after the Effective Date must file their initial reports within 30 days. Any errors or corrections must be made within 30 days.
- Review: Consider updating your entity’s governing documents to include (or, for documents still being negotiated, consider including) provisions that obligate investors to provide you with their necessary beneficial ownership information.
