The Corporate Transparency Act (CTA), which goes into effect on January 1, 2024, presents a significant change to the reporting requirements for existing corporations, limited liability companies, and other business organizations. Over the next couple months, we will be providing periodic updates on our preparation for the CTA’s implementation and how you can prepare your company for compliance.
Who must Report?
Reporting entities under the CTA include:Corporations, LLCs, or other entities created by filing a document with any secretary of state or similar office, including foreign entities that are registered in the US. While it is not yet certain as of the date of this note, reporting entities may also include LLPs, LLLPs, certain trusts, and most limited partnerships.
There are 23 exceptions to reporting. The most relevant exceptions include public companies, large operating companies, and tax-exempt entities. A “large operating company” is one that employs more than 20 full time US-based employees, had $5mm in gross receipts or sales over the previous tax year, and has an operating presence at a physical office in the US.
What are the Requirements?
Generally, most companies will need to report three classes of information regarding the reporting company:
- Identifying information regarding the company itself.
- Personal information regarding certain owners of the business—those who own 25% of the company or otherwise control its operations. This information includes name, date of birth, address, and identifying credentials, such as a passport and driver’s license.
- Information regarding professionals who assisted the company with its formation.
The above information will be maintained by the Department of Treasury in a private database that is not available for public review.
What is the Purpose of the CTA?
The CTA is designed to fight corruption, protect the financial system, and prevent drug traffickers, terrorists, and other criminals launder or hide assets in the US.
What are the Risks of Noncompliance?
Failure to report the required information in a timely manner could result in criminal penalties, including:
- Fine of up to $10,000
- Two years in jail
- Penalties of $500 per day of noncompliance
How Can My Company Comply?
The Business Department of MacElree Harvey began its preparation for the CTA over one year ago and is well versed in the new law and its potential impact on our clients. In furtherance of this initiative:
- We created proprietary software to manage our clients’ information in a secure location to position our clients for compliance with the CTA.
- We developed a process with commercial partners to make reporting a manageable process.
Compliance with the CTA is critical for your business. We encourage you to contact us at [email protected] for help. We will first help you determine whether your company owes a reporting obligation. If so, we will provide a checklist of information you will need to collect for reporting purposes as well as instructions for how to comply.