The Corporate Transparency Act - What you Need to Know

The Corporate Transparency Act goes into effect on January 1, 2024.[1]  The Act affects business entities, such as LLCs and corporations, and requires most entities, individuals in charge of those entities, and individuals that have interest in those entities, to report basic biographical information to the Financial Crimes Enforcement Network ("FinCEN"), a bureau of the U.S. Department of Treasury. The purpose of this new reporting requirement is primarily to collect data for storage in a national registry controlled by FinCEN. This data will be available to law enforcement agencies for their use in detecting illegal activity like money laundering and terrorist financing.

Starting on January 1, 2024, reports must be filed electronically using FinCEN’s secure filing system. Existing entities have until January 1, 2025, to comply with reporting requirements. New entities must comply within 90 days of creation. There are penalties for those who fail to comply starting at $500 per day up to $10,000 and possible jail time.

Why should you care? The new reporting requirements under this Act apply to almost all businesses in Georgia, and most individuals that own an interest in a business. Here’s what you need to know:

Who needs to file with FinCEN?

1)      Reporting Companies

2)      Beneficial Owners

3)      Company Applicants

How do you know if you fall into these categories? We’ve outlined these key terms below, but the short of it is, your entity (and you as the owner of that entity) likely fall subject to these new requirements. Reporting Companies are essentially any entity that files formation documents with the Georgia Secretary of State; Beneficial Owners, in summary, are the people that own or have significant interest in these entities; and Company Applicants are the people responsible for filing information about these entities and owners. It is possible to be both a Beneficial Owner and a Company Applicant.

Example for a single member LLC:

John Doe set up and started his company, John Doe Investments, LLC in June of 2023. Mr. Doe is the only member of the LLC and acts as the Manager. What are his obligations under the CTA?

Since John Doe Investments, LLC is an entity created by a filing with the GA Secretary of State, his LLC qualifies as a “Reporting Company”.

Since Mr. Doe owns 100% of his company, he is also considered a “Beneficial Owner” and he will need to report information such as legal name, date of birth, address, and provide a form of identification to FinCEN.

Since John Doe Investments, LLC was set up in 2023, he does not need to identify a “Company Applicant” but if he did, it would likely be his attorney that set his LLC up for him and/or himself as the person directing his attorney to do so.

Considerations for Estate Planning Clients

While the CTA certainly impacts our clients that own closely held family businesses, our estate planning clients also need to be vigilant of this new reporting requirement. It’s worth noting that the following individuals may hold ownership interests in a reporting company through a trust:  1) A trustee or other individual with the authority to dispose of trust assets; 2) A beneficiary who is the sole permissible recipient of trust income and principal or who has the right to demand a distribution of or withdraw substantially all of the trust assets; 3)  A grantor or settlor who has the right to revoke or otherwise withdraw trust assets.

[1] The Reporting Rule is found at 1010.380 in title 31 of the Code of Federal Regulations (CFR).

So what information needs to be reported?