Incoming Filing Obligations: The Corporate Transparency Act May Affect Your Business

by Summer Associate Kevin Escalona

In an effort to combat money laundering, terrorism funding, tax fraud, and other illegal financial activity, Congress enacted the Corporate Transparency Act (“CTA”). Taking effect on January 1, 2024, the CTA will create an obligation for millions of businesses across the U.S. to file required information with the Financial Crimes Enforcement Network (“FinCEN”).

Under this new reporting obligation, so-called “reporting companies” will be required to complete filings through the FinCEN website outlining information regarding company applicants and beneficial owners. Although the definition of “reporting company” includes all entities formed through filings with the Secretary of State, more than twenty unique exemptions may be applied for which would allow reporting companies otherwise required to complete CTA filings to be exempt. The majority of these exemptions apply to entities already subject to thorough federal and state filing requirements.

Entities will be subject to differing reporting obligations and deadlines governed by the date of the entity’s formation. For entities formed prior to January 1, 2024, filings must include information pertaining to the entity and the entity’s beneficial ownership. The CTA filing deadline for these entities is January 1, 2025. However, for entities formed on or after January 1, 2024, filings must be completed within 30 days of the entity’s formation and must provide the required information pertaining to the entity and the entity’s beneficial ownership and applicants.

Instead of an annual filing, after the initial filing, all filings must also be updated within 30 days in the case of a change in the information reported or an error in the initial filing. Failure to comply with the CTA’s requirements may carry financial penalties of up to $10,000 and criminal penalties of up to two years of imprisonment.

With the wide-reaching effects of the CTA, it is in the interest of companies to develop proactive policies to maintain accurate filings and avoid potential penalties under the CTA. Please contact us if you want more information on determining if your business(es) may be affected by this new legislation.