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Most Small Businesses Must Make New Federal Filing

The rules implementing the federal Corporate Transparency Act ("CTA") affecting millions of existing small businesses take effect January 1, 2024.  Importantly, despite the name of the law, these rules apply not only to corporations but also to LLCs and various other domestic and foreign entities.  And, unlike what many people assume, these reporting rules apply primarily to small businesses.  The penalties for noncompliance are significant.  The CTA's primary purpose is to help crack down on money laundering and other illegal activities. To this end, the rules require "reporting companies" to disclose certain information to the U.S. Department of the Treasury's Financial Crimes Enforcement Network ("FinCEN").

Which Businesses Must File Reports?

Unless a business qualifies for an exemption, it must file a report with FinCEN if it is an existing or new corporation, limited liability company, or certain other U.S. entity or if it is a foreign entity that has registered to do business in the U.S.  There are 23 categories of exemptions. Some of the more significant exemptions are the following:  (a) a large operating company – a company that employs more than 20 full-time employees in the U.S., has a physical office in the U.S., and has more than $5 million in gross receipts or sales in the U.S. as shown on its federal tax filing; (b) a subsidiary of an exempt business (applies to most but not all of the 23 exempt categories); (c) certain tax exempt entities; and (d) certain inactive entities formed before 2020 with no assets.

What Information Must Be Reported?

A reporting company that is not exempt is required to submit a report to FinCEN disclosing the following information: (a) the company's name, trade and dba names, current address, jurisdiction of formation, state of first registration (if a foreign entity), and taxpayer identification number ("TIN"); (b) each beneficial owner's name, date of birth, current address, a unique identifying number and issuing jurisdiction from a driver's license, governmental ID, or passport, and an image of that document; and (c) only if the company is created or first registered after January 1, 2024, the same information as in (b) for each "company applicant."

Who Are the Beneficial Owners and Company Applicants?

The "beneficial owners" of a reporting company include each individual who, directly or indirectly: (1) exercises "substantial control" over the reporting company or (2) owns or controls at least 25 percent of the ownership interests in the reporting company.  Individuals exercising substantial control include senior officers and anyone else who has substantial influence over important decisions by the reporting company.  Certain categories of individuals are exempt, including minors (provided parental information is reported) and nominees, intermediaries, custodians, or agents acting on behalf of another individual.

The "company applicants" of a reporting company are the individual who files the document that created or registered the company and the individual who directs or controls the filing.

What is the Reporting Deadline for the Initial Report?

The deadline for filing the initial report varies based on when the reporting company was created (for a domestic company) or first registered to do business in the U.S. (for a foreign company).  A domestic reporting company created, or a foreign reporting company first registered to do business in the U.S., before 2024 must file an initial report no later than January 1, 2025.  A domestic reporting company created, or a foreign reporting company first registered to do business in the U.S., in 2024 must file an initial report within 90 days of its creation or registration.  A domestic reporting company created, or a foreign reporting company first registered to do business in the U.S., after 2024 must file an initial report within 30 days of its creation or registration.  An exempt entity that ceases to be exempt must file its initial report within 30 days of the date on which the entity stops qualifying for the exemption.

What Are the Penalties for Noncompliance?

The penalties for noncompliance are significant.  Any person who willfully provides false beneficial ownership information or willfully fails to file complete or updated reports with FinCEN may face a civil penalty of up to $500 for each day that the violation continues and criminal penalties of a fine of up to $10,000 and/or imprisonment for up to two years.

How is a Report Made to FinCEN?

All initial, updated, and corrected reports are made directly to FinCEN through an online filing system.  There is no FinCEN filing fee.  As of the date of this Alert, the FinCEN filing system is not yet available but is expected to be ready by January 1, 2024.

What are the Updating and Correction Requirements?

This is not just a one-time filing.  Continuing updates and corrections must be filed.  If there is any change in the required reported information (other than about a "company applicant"), such as certain changes in the ownership or management of a reporting company or a change of the home address of a beneficial owner, the reporting company must file an updated report within 30 days of the change.  Also, if a report was inaccurate when filed, the reporting company must file a corrected report within 30 days of becoming aware or having reason to know of the inaccuracy.

Further Questions?

This is an alert about the new filing requirement.  It is not a comprehensive description or analysis of the law.  Additional information about the reporting rules can be obtained from FinCEN at

The lawyers responsible for the content of this alert are Michael R. Schneider, Michael D. Landry, and John W. Myles.  

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