Own a Business? Read this:
The U.S. Government may be entitled to some of your personal information, thanks to The Corporate Transparency Act
What is it?
Passed on January 1, 2021, the Corporate Transparency Act (CTA) requires most private businesses operating in the United States to identify and report to the federal government certain details regarding individuals with ownership or control of the business. Reporting obligations begin January 1, 2024.
The CTA was created in response to concerns over the role of shell companies and the way they can be used to obfuscate beneficial ownership and their role in facilitating criminal activity. For example, shell companies have enabled the movement of billions of dollars across borders by unknown actors and have facilitated money laundering or terrorist financing.
Note, these types of reporting requirements are common throughout the world.
Who does this effect?
“Reporting Companies” 31 CFR 1010.380(c)(1)
What is a reporting company? In short, most companies out there. But, more specifically, and as this may pertain to your business, the following, for domestic (U.S.) companies:
- A corporation,
- Limited Liability Company; or
- An entity created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe
Let’s take a closer look at this as it pertains to some Wisconsin entities. The following entities must be created by the filing of formation documents:
- LLC (Wis. Stat. § 183.0201)
- Limited Partnerships (Wis. Stat. § 179.0201)
- Corporation (Wis. Stat. § 180.0203)
- Nonstock Corporation (Wis. Stat. § 181.0203)
- Cooperative (Wis. Stat. § 185.05)
So, businesses that are any of the above entities are likely to be “reporting companies” under the CTA.
The following can be created without the filing of formation documents, which makes them not “reporting companies” under the CTA:
- General Partnerships (Wis. Stat. § 178.0202)
- Limited Liability Partnerships (Wis. Stat. §§ 178.0202; 178.0901(3))
- Sole Proprietorship
- Joint Ventures (based in contract)
Are there exceptions?
Yes, many. The list is long, and available here: 31 CFR 1010.380(c)(2). A few to note:
- Certain tax-exempt entities
- Large Operating Company, which means a company with (1) 20 full time employees; (2) an operating presence at a physical office within the U.S.; and (3) has filed a federal tax return in the U.S. for the previous year demonstrating more than $5 million in gross sales receipts
- Inactive entity (in existence before Jan. 1, 2020), with other requirements
What needs to be reported?
Certain information for each “beneficial owner” and up to two “company applicants”.
What is a beneficial owner and a company applicant?
31 CFR 1010.380(e)(1)
- Beneficial Owner: A beneficial owner is an individual who, directly or indirectly, through any contract, arrangement, understanding or otherwise:
- exercises substantial control over the reporting company; or
- owns or controls not less than 25 percent of the ownership interests of the entity; and
A beneficial owner does not include:
- minor child (parent/guardian would report)
- Individual acting as custodian/agent of individual
- Individual acting solely as an employee of a corporation, limited liability company or other similar entity and whose control over or economic benefits from such entity is derived solely from the employment status of the person, provided that person is not a senior officer (individual holding position or exercising authority of president, CFO, general counsel, CEO, COO or similar function);
- Individual whose only interest is a future interest through inheritance
- Creditor of reporting company
- Company Applicant. A company applicant is:
- For a domestic reporting company, the individual who directly files the document that creates the domestic reporting company.
- For a foreign reporting company: individual that directly files the document that first registers the foreign reporting company
- For both a domestic reporting company and an individual reporting company, the company applicant is the individual primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document
Reporting Requirements
31 CFR 1010.380(b)(1)(i)(A)-(F)
- For all individual beneficial owners and company applicants, the following needs to be reported:
- Full legal name
- Date of birth
- Street address
- In the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business, or
- In any other case, the individual’s residential street address
- Unique identifying number and issuing jurisdiction from qualifying document:
- Non-expired U.S. passport;
- Non-expired federal, state, local or Indian tribe document;
- Non-expired State driver’s license; or
- If none of the previous items are available, a non-expired foreign passport
- Image of document with identifying number
How do we report this information? Who is in charge?
The Financial Crimes Enforcement Network (“FinCEN”) is a bureau of the Department of the Treasury charged with administering the CTA. The information collected will be stored on the Beneficial Ownership Secure System (BOSS). The database will not be available to the public.
Access to https://fincen.gov/ for reporting purposes will begin on January 1, 2024.
When do I need to report?
Reporting Companies formed January 1, 2024 through December 31, 2024 need to report within 90 days of registration.
Reporting Companies formed January 1, 2025 or later need to report within 30 days of registration.
Reporting Companies formed before January 1, 2024 need to report on or before January 1, 2025.
Do I need to do anything now if I have an already formed entity?
Not yet. But, keep in mind that any new entity created in 2024 will have to report more quickly than an entity formed in 2023.
What is a FinCEN identifier?
For those who may be creating many entities and whose information may be provided frequently, you can obtain a FinCEN identifier.
- An individual may obtain a FinCEN identifier by submitting an application to FinCEN with the same information that a beneficial owner and company applicant must provide.
- Each FinCEN identifier must be specific to each individual or reporting company
- The identifier may be used in lieu of reporting the information beneficial owner and company owner information.
- Note that an individual with a FinCEN must update and correct any information previously submitted to FinCEN within 30 days of the changed information.
Questions?
Contact a KEW attorney by calling 608-709-7115 or emailing info@kewlaw.com.