The Corporate Transparency Act, passed in 2021, introduced significant changes related to  the disclosure of corporate ownership meant to enhance transparency and combat illicit activity such as money laundering and tax fraud. The effective date for the Act is quickly approaching and will be enforced starting January 1, 2024. In the past, entities could bypass disclosing their information by retaining a third party to act a registered agent. Now, certain corporations and LLCs will need to report information about their beneficial owners. What does this look like for the small business owners and entrepreneurs that are looking into filing a new entity with the Secretary of State?

This act will affect reporting companies. “Reporting Companies” are those that are created by filing with the Secretary of State, such as Corporations, Limited Liability Companies, Limited Liability Partnerships, Limited Liability Limited Partnerships, and Business Trusts. These entities, starting January 1, 2024, will have to file a “Beneficial Ownership Information” report which will require that their “beneficial owner”, the individual who owns or ultimately controls the company, disclose their name, date of birth, address for each of the company’s reporting company’s beneficial owners, and an image of an acceptable government-issued ID (e.g., a U.S. passport or state-issued driver’s license) that includes both an ID number and the person’s photograph to the Financial Crimes Enforcement Network (FinCen), a bureau of the U.S. Department of Treasury.

How do individuals know they are a beneficial owner required to file a Beneficial Owner Information report come January 1, 2024? Following the enactment of the Corporate Transparency Act, FinCen enacted a rule that specifies that a “beneficial owner” could fall into two categories. A beneficial owner can be “anyone who, directly or indirectly, owns or controls at least 25% of the ownership interests of a company registered to do business in the United States.” Additionally, anyone can fall into the “beneficial owner” category if they exercise substantial control over the company. The Act does exempt companies that are publicly traded on stock exchanges and their subsidiaries from reporting requirements.

If you do fall into the beneficial owner category, when are you expected to file? As mentioned, the Act is not effective until January 1, 2024. Reporting companies that have been filed with the Secretary of State, are expected to file their initial report to FinCen within one year from the effective date. Entities that have not yet been formed by that January 2024 effective date, are expected to file their report within 30 days of receiving confirmation that their entity has been formed or registered with the Secretary of State. There are significant fines for entities that fail to report.

FinCen mentions on their website that they cannot accept any reports before the effective date but nonetheless this is a date that you want to mark on your calendars.

For assistance with entity formation and questions regarding reporting requirements, contact the clinic at businessclinic@elon.edu.

 

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