ACTION NEEDED: Understanding your obligations under the new Corporate Transparency Act

At Your Service
with Attorney Bob

Dear Attorney Bob,

I’ve heard that there’s a new law requiring businesses to file reports with the government about their ownership, but I’m not sure what I need to do or when the deadlines are. Can you explain what the Corporate Transparency Act (CTA) is and what our company needs to do to comply? I’m concerned about the potential penalties if we miss something.
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Sincerely,
Anxious in Appleton

Dear Anxious in Appleton,
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The Corporate Transparency Act (CTA) is indeed a game-changer for businesses like yours, so you’re wise to be asking about it now! The CTA imposes new filing requirements on many companies, and failure to comply can result in steep penalties. Let me walk you through what’s required and what you need to know to stay on the right side of the law.

What is the Corporate Transparency Act (CTA)?

The CTA is a federal law designed to prevent illegal activities such as money laundering and terrorist financing by requiring businesses to report detailed information about the individuals who own or control them. It applies to almost every corporation, limited liability company (LLC), and limited partnership. The report, known as a Beneficial Ownership Information Report, is filed with FinCEN (the Financial Crimes Enforcement Network), a bureau of the U.S. Treasury.

The law is aimed at increasing transparency by identifying the individuals behind these entities, particularly small companies that might be used to mask the identities of those involved in criminal activities.

Who Needs to File?

Most corporations, LLCs, and limited partnerships must file a Beneficial Ownership Information Report with FinCEN. However, there are 23 exemptions, including for publicly traded companies, banks, and large operating companies that meet specific criteria (more on that later). But if your company doesn’t fall into one of these categories, you’ll need to file.

When Are the Filing Deadlines?

The timing for filing your initial report depends on when your company was formed:

1. If your company is already in existence as of December 31, 2023: Your Initial Report is due by January 1, 2025.
2. If your company is created between January 1, 2024, and December 31, 2024: You must file the Initial Report within 90 days of formation.
3. If your company is created on or after January 1, 2025: You must file the Initial Report within 30 days of formation.

But it doesn’t stop there! If there are any changes to the information in your Initial Report (such as a change in a beneficial owner’s address), you are required to file an Updated Report within 30 days of the change.

Additionally, if your company discovers an error in a previously filed report, you must submit a Corrected Report within 30 days of becoming aware of the mistake.

What Information Must Be Included?

The CTA requires you to report information about your company and the Beneficial Owners—the individuals who own or control the company.

• For the Reporting Company:
  You’ll need to provide the company’s full legal name, any trade or "doing business as" names, the principal place of business address, the State of formation, and the Employer Identification Number (EIN).
  
  
• For each Beneficial Owner:
  You’ll need to provide their full legal name, date of birth, residential address, and a copy of a non-expired ID (such as a passport, driver’s license, or state-issued ID).

A Beneficial Owner is any individual who directly or indirectly owns or controls at least 25% of the company or who exercises substantial control over the company, even without ownership—this could include senior officers or trustees. The CTA also requires that the Company Applicant—the person who filed the paperwork to form the company—provide their information if the company was formed after January 1, 2024.

Penalties for Noncompliance

The penalties for failing to comply with the CTA can be severe:
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• Civil penalties: Up to $500 per day for each day a required report is late or incomplete.
• Criminal penalties: Fines up to $10,000, up to 2 years of imprisonment, or both for willfully failing to file or filing false information.

FinCEN ID: A Simplifying Tool

FinCEN provides an option for Beneficial Owners and Company Applicants to apply for a FinCEN ID, which allows them to submit their personal information directly to FinCEN rather than through the company. This can be especially useful for:

• Beneficial Owners with interests in multiple companies.
• Individuals who want to keep their personal information confidential from the company.
• Company Applicants who frequently form companies.

Once an individual has a FinCEN ID, they can simply provide that ID to any company they have an ownership interest in, rather than re-submitting their personal information.

Exemptions

Not every business has to file under the CTA. One key exemption is for large operating companies that meet all three of the following criteria:
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1. More than 20 full-time employees.
2. A physical presence at a U.S. address.
3. Gross receipts of over $5 million reported on a U.S. tax return in the previous year.

Next Steps for Your Company

1. Designate a Responsible Person: Assign an owner, employee, or outside professional to handle your CTA compliance and ensure all required reports are filed on time.
   
   
2. Consider the FinCEN ID: Encourage Beneficial Owners and Company Applicants to obtain a FinCEN ID, especially if they are involved in multiple Reporting Companies or want to protect their privacy.
   
   
3. Update Contracts and Agreements: Review and update shareholder agreements, LLC operating agreements, and partnership agreements to require Beneficial Owners to provide updated information to ensure timely filing of Updated Reports.
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4. Review Your Exemption Status: If you believe your company may qualify for an exemption, consult with legal counsel to ensure you meet all requirements.

Final Thoughts

Anxious in Appleton, the CTA represents a significant new compliance obligation, but with the right procedures in place, you can avoid the hefty fines and penalties associated with noncompliance. Make sure you’re keeping track of your deadlines, identifying all Beneficial Owners, and staying on top of any changes that require an Updated or Corrected Report.

If you need help navigating this new law or want more guidance on how to set up your compliance procedures, feel free to reach out to me at NextGen Legal. We’re here to ensure your business stays compliant and worry-free.
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Warm regards,
Attorney Bob

P.S. Have more questions about the CTA or corporate compliance? Contact us at NextGen Legal for tailored guidance to keep your company on the right track!

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About Attorney Bob

Bob Sanders is an Attorney and the founder of NextGen Legal. After spending over a decade in BigLaw, working with clients of all sizes across the US, he became acutely aware of the recurring barriers that deterred businesses from seeking proactive legal advice: shrinking legal budgets competing with escalating fees. This realization spurred Bob to create NextGen Legal, a firm designed to eliminate these barriers and provide clients with the high-quality legal advice they need, exactly when they need it.

At NextGen Legal, we're transforming the traditional law firm model. Bob’s extensive experience in labor and employment law has been instrumental in shaping a service that offers both day-to-day legal counsel and rapid response for emergent issues. We strive to empower our clients with the knowledge and strategies necessary to navigate the legal landscape effectively and make confident employment decisions, without the fear of unexpected costs.
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Rated a Rising Star by SuperLawyers (an accolade reserved for only 2.5% of attorneys in Wisconsin), Bob provides strategic legal advice and counsel to companies of all sizes, helping business leaders make confident, informed decisions. His expertise spans employment law, regulatory compliance, litigation, safety, corporate strategy, and risk mitigation. Bob excels in transforming complex legal challenges into clear, actionable business solutions, offering strategic guidance to leadership teams.

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