New Reporting Requirement for Small & Medium Businesses

The Corporate Transparency Act (CTA) goes into effect on January 1, 2024. The CTA creates an additional reporting requirement for most businesses incorporated in, or operating in, the United States. This is a new requirement, and every business in the United States needs to consider how the CTA applies to them.

On September 18, 2023, the Financial Crimes Enforcement Network (FinCEN) released reporting guidelines in relation to the CTA. In brief, the CTA requires certain businesses to report information about their owners, officers, and controlling persons to FinCEN. The CTA applies to corporations, limited liability companies, and other business entities created in or registered to do business in the United States. Single-member LLCs and other business entities that may be disregarded or treated as pass-through entities for tax purposes will still be subject to the CTA reporting.

There are exceptions from this new reporting regime, although these are generally for entities with significant existing federal reporting obligations. There are exclusions for publicly traded corporations, banks, pooled investment vehicles, and large operating businesses that meet all the following criteria:

1. More than 20 employees;
2. More than $5 million annual gross revenue; and
3. Has a physical presence at a business office in the United States.

The CTA is expected to impact approximately 32.6 million small and medium-sized businesses in 2024.

Generally, companies will need to report any individual who, directly or indirectly, exercises substantial control over the reporting company. When an individual has a 25% or greater ownership interest, they should have considerable control over the entity. Multiple people may need to be reported for any one company.

For existing companies, the beneficial owner information must be provided to FinCEN before January 1, 2025. From January 1, 2024, new companies must report the beneficial ownership information within 30 days of forming the new LLC or corporation. In addition, any changes to beneficial ownership, name, or address must also be reported within 30 days. There is no annual reporting requirement.

The penalties for failure to comply with these requirements potentially include:

• A felony conviction.
• A $500 daily penalty up to $10,000.
• Up to two years of prison.

While simple in theory, applying these rules is likely to become very complex, especially for businesses owned by foreign entities, non-business entities like trusts, and multi-tiered ownership structures. If you require assistance in assessing your CTA filing obligations or in completing those filing obligations, please do not hesitate to contact your Marcum relationship partner, Ryan Dudley, or Martin Lopez.