On January 1, 2024, a new congressional law called the Corporate Transparency Act (CTA) went into effect. This law implements new reporting requirements that will apply to millions of small businesses nationwide. Small business owners should be aware of this new law and how it applies to them. The experienced Arizona business lawyers at Harrison Law, PLLC, help clients with various legal business matters, including compliance with federal regulations. If you have questions about how the Corporate Transparency Act affects your small business, consider calling (480) 320-2310 and scheduling a consultation with our dedicated attorneys today.
What Is the Corporate Transparency Act?
Under the Corporate Transparency Act, previously unregulated companies will be required to report information regarding “beneficial owners” of the company to the federal government. Beneficial owners are defined as anyone who owns at least 25% of the company, or anyone who has significant control within the company. Information on these beneficial owners must be reported to the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) through the Beneficial Ownership Information (BOI) form. Business owners who fail to comply with these new regulations may face fines of up to $10,000 and up to two years in prison.
The CTA is intended to close a corporate regulations loophole that allows criminals to use shell companies to hide their identities. However, this law will affect virtually all small businesses in the United States, not just those owned by criminals. Independent contractors, family offices, and limited liability companies (LLCs) are all required to file reports under the CTA unless they do not meet the definition of a reporting company or are exempt.
How Does the Federal Government Define “Substantial Control”?
According to the Federal Crimes Enforcement Network (FinCEN), an individual can have substantial control over a company in one of the four following ways:
- Having a senior office position, such as president, CEO, CFO, COO, general counsel, or other high-ranking position
- Having the authority to hire or terminate certain senior officials or a majority of directors
- Being an “important decision-maker” with the authority to make decisions regarding the company’s finances, business operations, or structure
- Having any other type of significant control over the company
Who Is Required To File Under the Corporate Transparency Act?
Both domestic and foreign reporting companies must file the Beneficial Ownership Information form. Domestic companies that must report include LLPs, corporations, and other business entities that are registered with a secretary of state or similar local legal authority. Foreign companies that must report include corporations, LLCs, and other business entities formed in foreign countries with legal permission to conduct business in any state.
Millions of small business owners will be subject to the reporting requirements of the CTA. This includes not only the previously mentioned LLCs and corporations but also limited liability partnerships, business trusts, and limited partnerships that are registered through a secretary of state or similar legal authority. Securities issuers, banks, domestic legal authorities, and other businesses not in these categories are exempt and not required to report.
What Are the Filing Requirements for the Corporate Transparency Act?
Business entities created on or after January 1, 2024, must report information about beneficial owners through a form on the FinCEN website within 90 days of the entity’s formation. Businesses created before this date must comply with the reporting regulations by January 1, 2025. If the business goes through changes in ownership, it must report its BOI within 30 days of the change.
If you are an Arizona business owner with questions about BOI filing under the Corporate Transparency Act, a dedicated Arizona business lawyer at Harrison Law, PLLC may be able to help. Call today to learn more about ensuring compliance.
Who Has Access to Beneficial Ownership Information?
According to the Financial Crimes Enforcement Network (FinCEN), the following parties will have permission to access the information about a company’s beneficial owners for authorized activities regarding law enforcement, national security, or intelligence:
- Federal, state, local, and tribal authorities
- Foreign officials who are approved through an application with a United States federal government agency
- Financial institutions, with permission from the reporting company
- Regulators of financial institutions
What Types of Companies Are Exempt From BOI Reporting?
According to FinCEN, there are 23 different types of business entities that are exempt from the requirements for reporting beneficial ownership information. These exempt businesses may include publicly traded businesses that meet specific FinCEN requirements, certain types of large companies, and many nonprofits. Specifically, any of the following entities may be exempt:
- A reporting issuer of securities
- Credit union
- Bank
- Government authority
- Bank or savings and loan holding company
- A money services business
- Securities broker or dealer
- Securities exchange or clearing agency
- Other entity registered through the Securities Exchange Act
- Investment adviser
- Venture capital fund adviser
- Registered entity with the Commodity Exchange Act
- Insurance company
- Licensed insurance agent
- Accounting firm
- Pooled fund
- Public utility
- Financial market utility (FMU)
- Tax-exempt entity
- Entity assisting a nonprofit organization
- Inactive entity
- Subsidiary of certain exempt entities
- Large operating company
Are Sole Proprietorships Considered Reporting Companies?
In most cases, sole proprietorships are not considered reporting companies and are not required to submit beneficial ownership information. However, sole proprietorships that were formed in the United States by registering with a secretary of state or similar office are considered reporting companies.
Standard government business filings like Internal Revenue Service (IRS) employer identification numbers, business names, or professional and occupational licenses do not make a sole proprietorship a reporting company, as these do not involve the formation of a new business entity. Only sole proprietorships that were formed by filing documents with government offices are considered reporting companies.
Learn More About the Corporate Transparency Act From Our Arizona Business Lawyers
The new Corporate Transparency Act demands attention from small businesses. With hefty penalties for non-compliance, it is crucial to understand this law and how it may apply to your business. To ensure that your organization stays compliant with federal regulatory requirements like those instituted by the Corporate Transparency Act, consider contacting an experienced Arizona business lawyer with Harrison Law, PLLC, by calling (480) 320-2310 today.
© 2024 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
