by Lisa Brennan

January 1 is the beginning of a new year with new changes! While you probably are not thinking about new laws at your New Year’s Eve party, coming January 1, 2024, is a new law that will affect most small businesses throughout the country.

Businesses, particularly small businesses, operate under their corporate structures exist for several reasons. Primarily, whether an LLC or a corporation or a partnership, a company is set up to limit one’s personal liability as they conduct business. Another feature of these companies, however, has been used to shield the identity of the true owner of a company. There are several practical reasons why someone would want to do this, such as protecting one’s privacy. But oftentimes, the reason is more nefarious than mere privacy.

Bad actors have continuously sought to create and utilize shell companies for money-laundering or other unlawful purposes. Most states do not require a business owner’s information to be collected. This lack of transparency has allowed illicit activities to abound. To combat this, Corporate Transparency Act (CTA) was issued in September of 2022, and is due to go into effect January 1, 2024.

Introducing the Corporate Transparency Act

What this means for ordinary small businesses is that the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) will begin collecting information on the beneficial owners of certain companies. FinCen recently provided new guidance on the Beneficial Ownership Reporting Rule. Starting January 1, (with some exemptions for certain types of entities), small corporations, LLCs and most organizations with State Corporation Commission filing requirements (or filing requirements with the similar governing body in other states), will be required to report their beneficial ownership information to FinCEN. While this information will not be publicly available, FinCen will be able to share this information with law enforcement and certain government authorities.

How to Manage CTA Compliance

Anytime there is a new regulation, questions abound as to what these new requirements will mean when put into action. So today, let’s address some of the most common questions.

Who is a “Beneficial Owner”?

The beneficial owner of a company is defined as an individual who owns or controls at least 25 percent of a company or an individual who exercises substantial control over a company.

What information will I have to provide?

When reporting, a company will need to provide:

(1) legal name and any trade name or Doing Business As (DBA) designation; (2) address; (3) the jurisdiction in which it was formed or first registered, depending on whether it’s a U.S. or foreign company; and (4) its Taxpayer Identification Number (TIN) (typically, this will be an EIN).

For each beneficial owner and each company applicant (discussed in more detail below), your company will need to provide the individual’s:

(1) legal name; (2) date of birth; (3) address; and (4) an identifying number from a driver’s license, passport, or other approved document for each individual, as well as a picture of that document.

Who is a Company Applicant?

A Company may have two company applicants:

• the individual who directly files the document that creates the company; and
• the individual that is primarily responsible for directing or controlling the filing of the relevant document.

When Will I Have to Report? Where Do I Report?

The good news for existing businesses is that they will have some time to file. Companies created before January 1, 2024, will need to file by January 1, 2025. For new companies, created on or after January 1, 2024 but before January 1, 2025 they will need to file within 90 days of receiving notice that its registration or creation was effective.  In Virginia, this will be within 90 days of “date of formation” with the State Corporation Commission.

For all companies created on or after January 1, 2025, the reporting window narrows to 30 days to report for all newly formed companies.

This is an ongoing reporting requirement, so any changes to beneficial ownership will need to be updated as well within 30 days of the change of ownership.

You can make your FINCEN report starting January 1, 2024 at https://boiefiling.fincen.gov

What are Some Exemptions?

The beneficial ownership requirement has several exemptions. Notably, tax exempt organizations, financial institutions, insurance companies and large companies are exempt from the reporting requirement.

Rule changes can be tedious and frustrating to say the least. But a little understanding goes a long way. For more information, you can go to the FinCen website: FinCen FAQs, and of course, you can always reach out to the team at Way Law.