The US Congress has issued a new law called the Corporate Transparency Act.  The Department of the Treasury is responsible for enforcing this and creating the final regulation through the Financial Crime Enforcement Network (FinCEN). This regulation requires businesses to disclose their beneficial owners, defined as individuals with substantial control over the company or 25% ownership.

This rule will go into effect on January 1, 2024 and is meant to assist authorities in counteracting money laundering, tax evasion, and other financial crimes. By implementing this regulation, the United States is now stepping into a new regulatory era and creating a central register of beneficial ownership information that at least thirty other countries already have in place for the purpose of enhanced transparency.

The rule applies to most businesses, including corporations and LLCs, with exemptions for federally regulated entities, larger operating companies, and more. So which businesses need to report?

Which businesses need to report under the Corporate Transparency Act?

Companies subject to reporting obligations under the Corporate Transparency Act are divided into two categories: domestic reporting companies and foreign reporting companies.

Domestic Reporting Company:

  • Corporation
  • Limited Liability Company (LLC)
  • Any other entity formed by filing with a state or Indian tribal office

Foreign Reporting Company:

  • Corporation, LLC, or other entity established under a foreign nation’s legal framework
  • Registered to conduct operations in any U.S. state or Tribal jurisdiction by filing with  a state or Indian tribal office

Understanding Reporting Exemptions

If your company was established or registered by submitting documentation to a state or Indian Tribal-level office, like a secretary of state, either for its creation or to permit business activities as a foreign entity, it falls under the category of reporting companies, unless an exemption is applicable.

The Corporate Transparency Act provides exemptions from the beneficial ownership reporting requirement for 23 types of entities. A list of exceptions can be found in the Beneficial Ownership Information Reporting FAQs.

In these definitions, “state” denotes any U.S. state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other U.S. commonwealth, territory, or possession.

Reporting on Corporate Transparency Act: What we know so far

The short answer is: there is a lot no one knows yet.

Businesses will be required to report their beneficial ownership information through an electronic filing system on FinCEN’s official website. The electronic filing system will not open until January 1, 2024. Importantly, FinCEN has confirmed that there will be no fee to submit your beneficial ownership information.

SixFifty can help navigate the Corporate Transparency Act

Businesses can proactively assess their reporting obligations using SixFifty’s Corporate Transparency Act Worksheet.

This tool works as a guided questionnaire that walks you through a series of questions about your business, just like a lawyer would. We then map your answers onto the FinCEN framework to let you know whether you need to report your ownership structure.

The end product is a document that shows that you took the obligation seriously – whether you need to comply or not. You should print, sign, and retain the completed worksheet for recordkeeping purposes. Showing that you tried in good faith to determine whether to comply can help you avoid serious fines and penalties.

The Corporate Transparency Act Worksheet is available for free here. For more information or to see the Marketplace in action, request a free demo.