So, do you own a corporation or a limited liability company? How about a limited partnership? Are you on the board of directors of a corporation or the manager of a limited liability company? Are you a senior officer of a corporation?
If any of these apply to you, then you need to be aware of the Corporate Transparency Act. Allow me to explain what that is.
If you have your own corporation or limited liability company, you already know that you have to pay $800 a year simply for the pleasure of doing business in California. You owe that $800 whether you have a profit of $5 million or a loss of $5 million.
You probably realize that you need to file a Statement of Information every year or two depending on what kind of entity you have.
And, I trust, you are aware of the consequences of failing to file the SOI, including the prospect of your entity being made “suspended” by the Secretary of State. If your entity becomes suspended, then it loses both the opportunity to defend itself if sued and the ability to sue someone else who owes you money or something else. So, the obligation of filing the SOI is no joke.
Now Congress has added an additional filing requirement if you have a corporation, limited liability company, or any other type of business that is formed by doing a filing with the Secretary of State. This is the Corporate Transparency Act.
As the Department of Treasury said, “Enacted by Congress in 2021, the CTA requires many companies formed or operating in the United States to report information about their beneficial owners to Treasury’s Financial Crimes Enforcement Network (FinCEN), which will store this sensitive information in a secure, confidential database.”
The main purpose of the CTA? “The department has prioritized efforts to implement the Corporate Transparency Act to prevent corrupt and other actors from laundering illicit funds through anonymous companies in the United States. This effort will equip law enforcement and other partners with the information they need to disrupt financial anonymity that enables crimes such as corruption, drug trafficking, and terrorism … ‘Unmasking shell corporations is the single most significant thing we can do to make our financial system inhospitable to corrupt actors.”’
Under its terms virtually all corporations and limited liability companies operating in the USA will have to disclose all people who own 25% or more of the stock or membership interest in the LLC, as well as decision makers for the entity. The disclosure is made to FinCEN. The following entities are excluded from this requirement:
Primarily regulated companies: Public companies, financial institutions, registered money transmitting businesses, 1934 Act broker-dealers, registered investment advisors and investment companies, insurance companies, PCAOB accounting firms, public utilities, 501(c)s and certain political organizations; OR a) companies that employ more than 20 full-time employees in the U.S.; b) Previous year’s federal tax return demonstrates more than $5 million of “gross receipts or sales in the aggregate”; and c) Have “An operating presence at a physical office” in the U.S.
Virtually all other entities must file the report with FinCEN.
The following will have access to the company’s filing:
FinCEN will permit federal, state, local and tribal officials, as well as certain foreign officials who submit a request through a U.S. federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence and law enforcement. Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company.
And what are the consequences of not filing the report? As the American Bar Association has reported, “Willfully providing false information to FinCEN or failing to report complete information to FinCEN can result in fines up to $10,000 and imprisonment for up to two years.”
Being a suspended entity is one thing – going to jail for two years is something else much more severe.
The obligation to do the CTA filing begins in 2024. ©