23 Aug Corporate Transparency Act: What Small Businesses Need to Know
The Corporate Transparency Act, which became law on January 1, 2021, places new reporting burdens on small businesses. The law will be implemented on or before January 1, 2022, by adoption of rules by the U.S. Department of Treasury.
Corporations, limited liability companies or similar entities that are created by filing with a secretary of state are required to report certain personal information of their beneficial owners to FinCEN. It is unclear whether partnerships, business trusts or series LLCs are similar entities encompassed by the Act. Entities with less than 20 full time e
mployees and less than $5 million in gross receipts as reported on its prior year tax return are required to report under the Act. All start‑ups will be subject to the reporting requirements unless and until they reach the thresholds required to qualify for the exemption.
Reporting companies are required to report the full legal name, date of birth, address and driver’s license or passport number for each beneficial owner and applicant. Beneficial owners are individuals who exercise substantial control over, or own or control 25% or more of the ownership interests of, a reporting company. The Act provides no means to determine “substantial control” nor does it define “ownership interest.”
Upon adoption of the new Treasury rules, every newly formed reporting company will be required to comply at the time of formation. Within two (2) years after the adoption of the new rules, every existing reporting company will need to file under the rule. Reporting companies must also report any changes to beneficial ownership or any beneficial owner’s information in a timely manner, but not later than one year (or sooner if Treasury dictates) of the changes. Civil fines and two years of imprisonment await those who fail to comply.
We at Densborn Blachly are staying abreast of developments on the new law and stand ready to assist our small business clients with compliance.