The Corporate Transparency Act
Attention business owners everywhere, this one’s for you.
Beginning January 1, 2024, all businesses will have to report to the Department of Treasury information about their company, including the things you would think of: address, EIN, but also the names of the owners.
Why does the Corporate Transparency Act matter to You?
Maybe to some of you, that doesn’t seem like a big deal, but it’s to catch bad actors who are using things like corporate shells and lots of different holding companies to avoid liability, to launder money, and to commit other what we would say “no-nos.”
So, what it does is basically you have to file this report of information with the Department of Treasury. They’re going to create a database of all companies that are not exempt under this rule with the relevant information. Some of that information, when it comes to company officials, includes a picture, a passport, or other government-issued ID. So we’re not talking like just a little bit of information about you, including your name and email address. This is verifying that you are who you say you are based on what the government already knows about you. Big deal.
A Changing Landscape for Business Owners
So there’s no more playing, “Oh, I don’t own, you can’t tell whether or not I own that company. I don’t have to file with the Secretary of State whether or not it’s my company.” Maybe you don’t have to file with the secretary of state, but the Department of Treasury is going to know. So the idea of anonymity kind of goes away a little bit.
This database will not be publicly available and it’s not subject to the Freedom of Information Act requirements, meaning you can’t, as any person in the United States, request this information and have it sent to you under the Freedom of Information Act. It’s only going to be available to those officials who have a legitimate reason for seeking it. Think law enforcement, think the IRS, think other government agencies who are investigating companies for bad doings or particular people for bad doings.
Now, I’m sure at some point this is probably going to be abused by somebody and we’re all going to be sad about it and you know it’s going to ruffle feathers but seems like the heart’s in the right place. We want to avoid people who are trying to avoid liability.
Compliance and Consequences
Who does this apply to? Well, it applies to every single domestic corporation filed after January 1, 2024, and some foreign corporations. Now, there are exemptions. There are 23 specific exemptions. We’re not going to go through all of those, but a few examples are tax-exempt entities, publicly traded companies, large companies, and inactive entities.
However, for most people in the United States who have formed a company or are going to form a company that does not fall within these exemptions, you will have to file this report. And failure to comply with this requirement actually comes with some real teeth attached to it. It’s not a slap on the wrist. It’s not a warning letter. You can be fined $500 a day for each violation, up to $10,000, or receive up to two years in prison for non-filing report. It’s a big deal.
So, you have to do this and it needs to become part of the things that you consider when forming a company, when dissolving a company, when doing your governance documents.
If you’re not sure what you need to do, how you need to do it, when you need to do it, give us a call. We’ll help you decide when, where, and how.