Michael Bishop is a member of MacDonald Illig’s Business Transactions and Trusts & Estates practice groups. He helps clients with corporate transactions, tax issues and estate planning matters.
S. Craig Shamburg is the chair of MacDonald Illig’s Business Transactions Group. He provides guidance to the firm’s corporate clients on matters related to organization, governance, operations, succession planning, and mergers & acquisitions.
The newly passed Corporate Transparency Act (“CTA”) will require reporting companies to file disclosure forms with the U.S. Treasury Department through the Financial Crimes Enforcement Network (“FinCEN”). The CTA is intended to prevent money laundering and other illegal financial activity being funneled through U.S.-based entities. Under the CTA, reporting companies must file information on their beneficial owners and company applicants. The disclosure form is due no later than January 1, 2025 for reporting companies formed before January 1, 2024.
What is a Reporting Company?
A “reporting company” is defined as either a domestic or foreign privately held company and broadly includes entities that were created by the filing of a document with a state agency (i.e., a corporation, limited liability company, limited partnership, professional corporation, etc.). The CTA excludes certain nonprofit, professional entities and “Large Operating Companies” from this requirement.
A Large Operating Company is defined as one that has: 1) more than 20 full-time employees; 2) a physical office presence in the United States; and 3) filed a Tax Return for the prior year which demonstrates gross receipts or sales in excess of $5 million. Wholly-owned subsidiaries owned by excluded companies are also excluded.
What Information is Needed?
The CTA requires the disclosure be made to FinCEN each year. The information that must be disclosed about the “reporting company” includes: 1) the company’s legal name, trade name and any “DBA” designations; 2) the address of its principal place of business; 3) the jurisdiction of formation, and 4) its tax identification number.
In addition, the CTA requires the “reporting company” to disclose certain information about its “beneficial owners” the legal name, date of birth, current address and ID number (accompanied with a picture of that ID) of each beneficial owner. A “beneficial owner” is an individual that either exercises substantial control over the “reporting company” or owns or controls at least 25 percent of the equity interests in the “reporting company.” A wholly-owned subsidiary’s “beneficial owner” is who ultimately owns or controls the top level company.
In addition, the “reporting company” must file a new report to correct or change any information contained in a previous report within 30 days of the change. The information provided to FinCEN under the CTA is confidential and can only be disclosed by FinCEN to a government agency, law enforcement, or financial institution to ensure compliance with the CTA.
It is anticipated that the required disclosure form must be filed online through FinCEN’s website. As of this writing, the online portal to file the disclosure is not yet active.
Failure to timely file the form can lead to civil penalties of up to $500 per day, up to $10,000 in total. In addition, the CTA provides for criminal penalties of up to 2 years for knowingly submitting false information.
The CTA contains a safe harbor from civil and criminal penalties for certain good- faith filers. If a person who filed a report which contained untrue or inaccurate information later files an updated report containing the corrected information within the 90-day timeframe, then the filer may avoid the aforementioned civil and criminal liability. Importantly, to be eligible for the safe harbor the filer must not have acted with the intention to evade the reporting requirements of the CTA and must not have had actual knowledge that the information contained in the original report was untrue or inaccurate.
If you have any questions or concerns regarding how these filing requirements or the CTA will impact your business, please reach out to us at 814/870-7600.