The Corporate Transparency Act

Editor's Note:  Although employment law is the focus of the Employment Law Reporter and our Staff Report blog, from time to time there are other legal developments which we feel merit the attention of our readers. The Corporate Transparency Act is a new law that will impact a large number of California employers.

The Corporate Transparency Act is Coming January 1, 2024,
Requiring Unprecedented Disclosure of Corporate Ownership and Control

On January 1, 2024, the Corporate Transparency Act (“CTA”) will go into effect, with the primary objective of combating terrorist financing, money laundering and other illicit activities. The CTA requires many entities to disclose Beneficial Ownership Information (“BOI”) and other related data to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury.

This client alert highlights key provisions of the CTA and requirements applicable to those who have interests in or substantial control over entities formed or registered to do business in the United States.

What You Need to Know:

If an entity fits the criteria of a “Reporting Company” under the CTA it will have either 30 days, 90 days, or one year to report BOI, depending upon the Company’s date of formation.

Reporting Companies must disclose BOI; that is, who owns or controls the entity, as well as Company Applicant information to FinCEN.

Willful failure to report carries civil penalties of $500 per day and may result in additional criminal penalties.

What is a “Reporting Company”?

Domestic Companies: any entity (such as a corporation, LLC, LP or LLP) created by the filing of a document with a secretary of state or similar office within the United States.

Foreign Companies: Any entity created under the laws of another country that is registered to do business in the United States.

Contact us to see if your entity is a Reporting Company, and any possible exemptions that might apply.

Who Are “Company Applicants” and “Beneficial Owners”?

Company Applicants: An individual who files the formation or registration documents for a Reporting Company formed on or after January 1, 2024. This includes both the person who actually files the documents, and the person who directs the filing.

Beneficial Owners: Any individual who either directly or indirectly: (i) exercises substantial control over a Reporting Company; or (ii) owns, or controls at least 25% or more of the ownership interests of the Reporting Company. All Beneficial Owners must be individuals which generally requires looking through legal entities to ultimate ownership or control.

What Information Needs to be Reported?

Reporting Company	• Legal name and any trade or d/b/a name • Street address for principal place of business • Tax ID number (TIN and EIN)
Company Applicants and Beneficial Owners	• Legal name • Date of birth • Current residential or business street address • ID number (passport, driver’s license, or state ID) • Image of document with the ID number OR • FinCEN ID

How Will Information Be Reported to FinCEN?

The reports will be submitted to FinCEN electronically through an online interface (no paper filings).  There will be no fee for submitting BOI to FinCEN.

When Do I Have to Report?

Companies created or registered before January 1, 2024, have until January 1, 2025, to file their initial reports

Companies created or registered on or after January 1, 2024, but prior to January 1, 2025, must file their reports within 90 days after creation or registration.

Companies created or registered on or after January 1, 2025, must file their reports within 30 days after creation or registration.

Companies must report any changes to the reported information within 30 days from when the relevant change occurs.  This would include, for example, any change in the BOI previously reported; changes in management and ownership; mergers; or to correct an inaccuracy.

Thus, if a new entity is likely to be needed sometime in 2024, forming that entity before the end of 2023 may be advisable to both buy some extra time to report to FinCEN and avoid the Company Applicant reporting requirement. Conversely, if an entity that would otherwise be reportable is no longer needed, it may make sense to dissolve that entity prior to year-end.

What Happens If I Willfully Fail to Report to FinCEN?

• Civil penalties including fines of up to $500 per day for failure to timely report; and
• Criminal penalties including fines up to $10,000 and imprisonment of up to two years.

Are There Any Exemptions?

The CTA exempts large operating companies if they: (i) employ more than 20 full-time employees in the United States; (ii) have an operating presence at a physical U.S. office; and (iii) have filed a U.S. federal income tax or information return for the previous year demonstrating more than $5 million in gross receipts or sales (excluding gross receipts or sales from non-U.S. sources).

Exemptions may also apply to entities that are already subject to substantial federal reporting requirements, such as banks, large insurance companies, and public reporting companies registered with the U.S. Securities and Exchange Commission.

Is the Registry Accessible to the Public?

No! The public cannot access the information on the registry. However, the information may be requested by federal, state, local and tribal officials for authorized activities related to national security, intelligence, and law enforcement. Financial institutions may have access to BOI in certain circumstances, with the consent of the reporting company.

ECJ has closely followed the CTA since its enactment and will continue to monitor it for any updates that may impact our clients. If you have any questions about the CTA or related matters (including assistance with filings), please contact your ECJ relationship partner, the authors of this alert, or any member of our Business, Corporate, Tax or Real Estate practice groups.

For more information, contact:

This alert is a periodic publication of Ervin Cohen & Jessup LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.