Dedicated to preventing money laundering and other illicit financial activities, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FINCEN”) has released new regulations regarding reporting under the Corporate Transparency Act (“CTA”). These regulations largely affect small businesses. 

Beginning January 1, 2024, all businesses classified as a “reporting company” must report information about the reporting company, personal information about beneficial owners of the reporting company, and personal information about individuals who form or direct or control the formation of the reporting company. A reporting company is any domestic or foreign privately held company created by the filing of a document with the secretary of state or similar office in the U.S., or under the law of a foreign jurisdiction authorized to do business in the U.S. The regulations also contain 23 exemptions from the definition of a reporting company, which largely focus on entities already subject to significant government oversight. These exemptions include, but are not limited to: 

  • Large companies, defined as companies with 20 or more employees, a physical operation location in the U.S., who have filed a U.S. tax return for the previous year showing at least $5,000,000 in gross receipts or sales, excluding receipts or sales from outside the U.S.; 
  • Subsidiaries of exempt entities, except subsidiaries of money service businesses, pooled investment vehicles, entities assisting tax-exempt entities, or any inactive entity. 
  • Reporting companies must also furnish information regarding their beneficial owners and company applicants. Beneficial owners are defined as individuals who exercise substantial control, or who own at least 25% of the reporting company. All members of a company’s board of directors, CEOs, Presidents, COOs, CFOs, and General Counsel must be reported as beneficial owners. Company applicants capture two categories of individuals: (1) those who directly file formation documents; and (2) individuals controlling or directing the filing of formation documents. Company applicants may include attorneys or company representatives and each reporting company is limited to two company applicants. Information regarding company applicants is only required for businesses formed on or after January 1, 2024. 

Reporting companies formed prior to January 1, 2024, will have until January 1, 2025, and reporting companies formed on or after January 1, 2024, will have 30 days from formation to report the following information: 

For reporting companies: 

  • Full legal name and any d/b/a or assumed business names; 
  • U.S. address of the principal place of business; 
  • Jurisdiction of formation; 
  • Taxpayer identification number or employer identification number. 

For beneficial owners and company applicants: 

  • Full legal name; 
  • Date of birth; 
  • Residential street address; 
  • Unique identifying number from a passport, driver’s license, or other government identification. A copy of the I.D. used should also be included. 

Penalties for not complying with the regulations are severe, consisting of fines of up to $500 per day for willful violations, criminal penalties of up to $10,000, and up to two years of prison time. Although the enforcement does not begin for existing companies until 2025, businesses should start taking steps now to identify whether they are exempt or non-exempt and begin gathering relevant information to prepare for reporting.

If you have questions about your business’s obligations under the CTA, please reach out to any member of  Gardner Skelton’s healthcare team.