Corporate Transparency Act

We want to wish you and your families a very Happy New Year.  As we start the new year, there is a very important law that affects all corporations, limited liability companies, limited partnerships, and limited liability partnerships wherever formed in the United States, as well as all foreign entities (collectively “Entities”), registered to do business in the United States, except for those which are exempt under the law. The Corporate Transparency Act is a new federal reporting law that went into effect on January 1, 2024.

WHO DOES THE NEW REPORTING LAW APPLY TO.

The Corporate Transparency Act was established to enable law enforcement agencies to combat money laundering, terrorism financing, tax and securities fraud, and other crimes.  This new law applies to Entities formed in the United States, and foreign Entities doing business in the United States, that have less than 20 employees, and have an annual gross income of less than $5,000,000.00. The new law does not apply to public companies, government-controlled entities, regulated financial institutions, public accounting firms, or nonprofit entities that are exempt under Internal Revenue Code Section 501.  Non-profit Entities must have obtained from the Internal Revenue Service non-profit tax-exempt status.

Under The Corporate Transparency Act, all Entities are required to comply with these new federal reporting compliance requirements, which include completing an online form through a secure filing system that is or will be available at the Financial Crimes Enforcement Network (“FinCen”) which is part of the United States’s Department of Treasury.

WHO’S PERSONAL INFORMATION WILL BE PROVIDED.

These reporting requirements include completing a form online that discloses all of the names that such entities operate under, the business address and the EIN for such entity.  In addition, personal information must be provided for (1) all owners that have a 25% or greater ownership interest in such Entities, (2) their Board of Directors, and (3) corporate officers, and managers of LLCs, and it appears any key employees that may have control over the company.

Furthermore, on the online form, each Entity must provide the personal information of the Company Applicant which is defined under the law as the individual who files an application with the California Secretary of State’s office to form any one of the types of entities mentioned above, or files the paperwork to register a foreign Entity. It appears at this time that the Company Applicant would include the personal information of any attorneys or paralegals that prepared and filed any of the above-referenced documents for one of the non-exempt entities. The individual who prepares and files the online form, whether an owner, officer, board member, manager, or employee of the business, must also disclose his or her personal information.

WHAT PERSONAL INFORMATION MUST BE PROVIDED.

The personal information that must be reported for the above individuals includes: (1) such individual’s full legal name, (2) such individual’s date of birth, (3) each individual’s current residential address, (4) for each individual a unique identifying number from an unexpired driver’s license, United States passport or other acceptable identification, and (5) a photograph of such individual that is acceptable by the federal government.

WHEN CAN THE PERSONAL INFORMATION BE DISCLOSED.

The personal information that an Entity is required to disclose for any of the above-referenced individuals, may be released upon request of (1) a federal agency engaged in national security, intelligence, or law enforcement for use in connection with that activity, (2) state or local law enforcement agencies under a Court order for use in a civil or criminal proceeding, and (3) certain foreign law enforcement agencies.

DEADLINE FOR COMPLETING THE ONLINE DISCLOSURE FORM

Currently, this online form must be submitted within 90 days for any such entity formed between January 1, 2024 and December 31, 2024.  For entities formed on or after January 1, 2025, such Entities must complete the online form within 30 days of such entity being formed. For all entities formed before January 1, 2024, such entities shall have until December 31, 2024, to complete the online form.

PENALTIES FOR NON-COMPLIANCE

The penalties for not completing and filing this online form are very significant. For any entity that fails to file the online form, files the report after the deadline, or provides incorrect information will be subject to civil penalties that may amount to $10,000 in fines and imprisonment for up to two years.

CONCLUSION

We will make every effort to update our clients as we learn more about this new law.  There are several ongoing lawsuits contesting the law’s constitutionality. If you would like to learn more about this new federal reporting requirement under the Corporate Transparency Act, as well as whether and how it may affect your business, please contact Douglas A. Bordner, who oversees the business and transactions department at MYERS, WIDDERS, GIBSON, JONES & FEINGOLD, LLP. We are here to assist you and help your business comply with Federal compliance and California requirements.