Hey, I’m Morgan Davis, a business attorney from Raleigh, North Carolina, specializing in cannabis and wellness.
Introduction to the Corporate Transparency Act
The Corporate Transparency Act (CTA) was passed at the end of last year and will take effect starting January 1, 2024. This law introduces new reporting requirements for businesses in the United States. But what exactly does this mean for you and your business?
Who Needs to File?
Beginning in 2024, almost all businesses formed in the U.S. will be required to file paperwork with FinCEN, a sub-agency of the U.S. Department of Treasury that focuses on financial crimes. FinCEN’s goal is to stop illegal activities such as money laundering and tax evasion by monitoring corporations and LLCs that may be used as shell companies for these purposes.
What Is the Corporate Transparency Act?
The CTA mandates that most business entities file detailed information about their company and its beneficial owners with FinCEN. This requirement applies to nearly all businesses formed by filing documents with the Secretary of State or similar agencies.
There are a few exemptions to the filing requirement, particularly for entities that are already highly regulated. These include:
- Publicly traded companies
- Credit unions
- Nonprofits
- Accounting firms
- Public utilities
However, most small and medium-sized businesses in America will not be exempt and will need to comply.
The Large Operating Company Exemption
One common exemption is for “large operating companies.” To qualify for this exemption, your business must meet the following criteria:
- Employ at least 20 full-time employees in the U.S.
- Have an operational presence in the U.S.
- File a federal income tax return with more than $55 million in gross receipts for the previous year.
What Information Needs to Be Filed?
The information required in the filing includes details about the company and its beneficial owners. Here’s a breakdown of the key data points you’ll need to provide:
Company Information:
- Full legal name of the business
- Any “doing business as” (DBA) names
- Employer Identification Number (EIN)
- Current address and principal place of business
- Jurisdiction of formation
- Taxpayer identification number
Beneficial Owner Information:
- Full legal name
- Date of birth
- Current residential address
- A unique identifying number (such as from a U.S. passport or state-issued ID)
- A photo ID
A “beneficial owner” is defined as anyone who directly or indirectly controls the company or owns at least 25% of its equity.
When and How to File
- Existing businesses (formed before January 1, 2024): You will have until December 31, 2024, to file your information.
- New businesses (formed after January 1, 2024): You will have 90 days from the date of formation to submit the required filing.
- Beginning in 2025: All newly formed entities will have just 30 days to file.
Penalties for Non-Compliance
The penalties for failing to comply with the Corporate Transparency Act are severe—up to $500 per day until the required information is filed. The Department of Treasury takes this seriously, so compliance is mandatory.
Need Help? We’re Here for You
Filing under the Corporate Transparency Act can be complex, especially if your business has multiple owners or advisors. If you’re unsure about any part of this process, or if you want professional help to ensure everything is filed correctly, feel free to reach out to us. We’re here to help your business stay compliant and protected.
Ready to File?
Don’t let this be something that falls off your to-do list. Get started early, and if you need assistance, our team is ready to guide you through the process. Compliance is crucial—avoid penalties by filing sooner rather than later!
