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The Corporate Transparency Act: Part I

What Business Owners Need to Know

Part 1 of Series

The Corporate Transparency Act was adopted by Congress in December of 2020 with Final Regulations issued by the Financial Crimes Enforcement Network (FinCEN) in September 2022. It is set to take effect on January 1, 2024 and carries the weight of criminal and civil penalties for non-compliance.

Its purpose is to protect against the use of the United States financial system for illicit activities—particularly money laundering—by requiring entities to file beneficial ownership information reports (and other similar disclosures) with FinCEN.

We will highlight several intricacies of the new reporting rules in future blog posts, but here we will address the question we expect to hear most from business owners: does my business need to file a beneficial ownership report?

The short answer for most small business owners is yes. The rule describes two types of companies required to file a beneficial ownership information report: Domestic Reporting Companies and Foreign Reporting Companies. If you started your business (or qualified your company to do business in the United States) by filing a document with the secretary of state (or any similar office under the laws of a State or Indian Tribe), your business is a “Reporting Company.” To be clear, this includes corporations, limited liability companies, limited liability partnerships, business trusts, and most limited partnerships.

The rules contain exemptions for companies that meet any of twenty-three tests, which we will not fully address here, but there are two key categories of businesses that are exempt: (1) those that are already subject to regulations requiring the disclosure of beneficial ownership information; and (2) so-called “large operating companies.”

Large operating companies are those businesses that (1) employ more than twenty employees on a full-time basis in the United States; (2) filed federal income tax returns in the United States demonstrating more than five million dollars in gross receipts in the previous year; and (3) have a “physical office” within the United States. A large operating company loses its exemption from reporting if it ever fails to satisfy any of the three criteria.

Stay tuned to learn more about the Corporate Transparency Act and what it means for your business. Next time, we will discuss who is considered a “beneficial owner” under the Act, and what information must be disclosed.