The Corporate Transparency Act (“CTA”) was enacted as part of the Anti-Money Laundering Act of 2020 in an effort to crack down on illicit financing and increase transparency as to who owns interests in various business entities. The CTA became effective January 1, 2024, and establishes a beneficial ownership reporting requirement with the Financial Crimes Enforcement Network (FinCEN) for most corporations, limited liability companies, and other entities created or registered to do business in the United States.
Effective January 1, 2024, most companies that are registered or required to register with the South Carolina Secretary of State (or any other State’s Secretary of State) will need to report beneficial ownership information to FinCEN. Companies required to file these reports are called “Reporting Companies” under the CTA.
There are 23 types of entities that are exempt from the reporting requirements under the CTA, most of which are currently subject to extensive regulation or already required to report ownership information, such as banks, credit unions, government authorities, public utilities, investment companies, insurance companies, tax exempt entities and wholly owned subsidiaries of exempt entities. There are a couple exemptions of particular note for more common businesses:
Large Operating Companies. To meet the “large operating company” exemption under the CTA, the company must (i) employ more than 20 full time employees, (ii) have an operating presence at a physical office in the United States, and (iii) have gross sales of over $5,000,000 reported on the previous year’s tax return.
Inactive Entities. To qualify as an exempt inactive entity, all the following criteria must apply: (i) it was in existence before Jan. 1, 2020, (ii) it is no longer engaged in active business; (iii) it does not hold any assets (including ownership interests in other entities), (iv) it is not owned by a foreign person; (v) its ownership has not changed during the immediately preceding 12-month period; and (vi) it has not sent or received more than $1,000 in the immediately preceding 12-month period.
Reporting companies must report information about the Company itself and all beneficial owners. A “Beneficial Owner” under the CTA is an individual who exercises substantial control over the reporting company or owns or controls 25% or more of the reporting company. An individual can exercise substantial control if he or she is a senior officer, has the authority to appoint or remove officers or directors, is an important decision-maker, or has any other form of substantial control. FinCEN expects reporting companies to identify all individuals who exercise substantial control.
The beneficial ownership information to be reported is: (1) full legal name; (2) date of birth; (3) current residential street address; (4) a unique identifying number from a legal identification document (such as a passport or driver’s license); and (5) an image of a legal identification, for each beneficial owner. The reported information may be shared with other government agencies.
The filings will also contain information about the reporting company such as its name, including any trade names, the address of its principal place of business, the state of its formation, and its taxpayer identification number.
Reporting companies created before January 1, 2024, will have until January 1, 2025, to file the initial beneficial ownership information report. Reporting companies created on or after January 1, 2024 will have 90 days after creation to file the initial beneficial ownership information report. Reporting companies created after January 1, 2025, will have 30 days from creation to file the beneficial ownership information report.
Once the initial report is filed, the reporting company must also provide an updated filing within 30 days if any of the reported information changes.
There are both civil and criminal penalties for failing to report. Civil penalties are up to $500 per day for each day the violation continues, and criminal penalties include imprisonment for up to two years and/or a fine of up to $10,000.
Additionally, for reporting companies created or registered on or after January 1, 2024, a Company Applicant must also be reported. The “Company Applicant” is any person who directly files the document that creates or registers the company, or who is primarily responsible for directing or controlling the filing.
If you have questions regarding whether the CTA applies to your entity and what the requirements are, we are available for consultations regarding compliance with the CTA. However, please be advised that at this time, Buxton & Collie, LLC will not file any information on your company’s behalf with FinCEN, will not update your FinCEN account in the future, and will not serve as the Company Applicant for any entity.
For more information regarding CTA, please visit the South Carolina Secretary of State’s CTA page HERE and FinCEN’s frequently asked questions page HERE.
This report has been prepared by Buxton & Collie, LLC for informational purposes only and does not constitute legal advice. If you would like to further discuss reporting requirements, please contact us.
