New Federal Reporting Requirements for Business Owners

The newly enacted federal Corporate Transparency Act (“CTA”) went into effect beginning January 1, 2024, which requires, with few exceptions, most all companies to report to the U.S. Treasury certain information on the company’s ownership. Companies that were in existence prior to January 1, 2024 have until January 1, 2025 to file their initial reports. Companies that were formed in 2024 have 90 days from formation to file their report. Any failure to report may be met with civil fines and potentially criminal liability. The information below provides a summary of what the CTA is, what business owners need to do to be compliant, and how SJJ Law can assist in that effort.

What is the CTA?

The CTA was passed as a criminal investigatory aide of the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  FinCEN exists to crack down on criminal money laundering schemes often done through the use of U.S. business entities (limited liability companies, s-corporations) registered with a particular state’s Secretary of State Office. The CTA provides FinCEN with information on the individuals who own and control these entities by requiring every U.S. business entity (that is not exempt) to provide personal information on the entity’s “beneficial owners.” The information contained in the report is confidential and is not available to the public.

Who Needs to Report?

Unless an exception exists, every company and/or business entity that has filed any formation document (articles of organization, articles of incorporation, certificate of limited liability) with any US Secretary of State Office needs to file. In short, every LLC, S-corporation, C-corporation, and LLP needs to  report.

There are a few exceptions, which cover entities that already have federal reporting requirements (publicly traded companies, banks, insurance companies). The exception most applicable to privately held companies is the “Large Company” exception. This exception excludes from reporting all companies (and their subsidiaries) that have in the year of reporting both (i) 20 or more employees; and (ii) over $5 million in annual revenue.

What Is Included in the Report?

 Each report must include certain basic information on the company itself (name, business address) and about each “Beneficial Owner” and “Company Applicant”. A Beneficial Owner includes all individuals who (i) own at least 25% of the company; and/or exercise substantial control over the company (e.g., officers and managers). A Company Applicant is the person who signed and/or filed the appropriate formation document with the Secretary of State (e.g., the organizer of the LLC or incorporator of the corporation).

For each Beneficial Owners and Company Applicant, the report requires personal information: name, home address, date of birth, and government ID number (passport or driver’s license).

When You File, How Often, and Where?

Only an initial report is required for businesses (e.g., there is no annual filing requirement). Updated reports are required if the information provided in the initial report changes (ownership changes, address changes, etc.).  As provided above, companies formed prior to January 1, 2024 have until the end of 2024 to file their initial report.  Companies formed in 2024 have 90 days from formation to file their initial report.  Companies formed beginning in 2025 will have 30 days to file their initial reports. Reports are filed online using the FinCEN reporting system.  SJJ Law has an account set up with FinCEN to begin reporting on behalf of clients.

What Are the Penalties for Failing to File?

A willful failure to file any report carries with it stiff civil penalties of up to $500 each day the report remains delinquent. In addition, criminal liability of up to $10,000 and 2 years in prison may be imposed.

Update on Validity of Law

Having gone into effect January 1, 2024, like most new laws and regulations, legal challenges were to be expected. On March 1, 2024, a federal judge in the Northern District of Alabama ruled the CTA unconstitutional. The case was brought by the National Small Business Association (National Small Business United v. Yellen.) We anticipate the government to appeal of this decision to the 11^th Circuit Court of Appeals and potentially the Supreme Court of the United States. We also anticipate similar lawsuits from other jurisdictions.

While the constitutionality of the CTA plays out in the appellate courts, it is imperative to understand that the Yellen ruling only applies to the plaintiffs in that case. Accordingly, FinCEN released a notice on March 4, 2024 that it will halt enforcement of the CTA with respect to those plaintiffs only. In other words, unless your business is a member of the National Small Business Association, you should plan on reporting until the constitutionality of the CTA is finally decided by the appellate courts.

How SJJ Can Help

In addition to monitoring the outcome of the constitutionality of the CTA, we anticipate the enforcement of the CTA to evolve over the next few months and years. Accordingly, at SJJ Law we diligently monitor changes in the law to fully advise our clients on what they need to do, how to do it, and when.

The reports under the CTA are not overly complicated or onerous, but the consequences of not being compliant are significant. SJJ Law can help you navigate the CTA and work through each step of the reporting process from determining whether you and your business needs to file, what information it needs to file, and finally filing the report online on your behalf through the FinCEN system.

SJJ Law also offers clients’ business annual review services, which, when including your CTA filing requirements, provides you with a full service corporate compliance partner.

Please contact us today to schedule an appointment to analyze your requirements under the CTA and your general corporate legal needs.