Why it looks like a good idea to form your LLC before January 2024! It gives you more time to comply with the Corporate Transparency Act (CTA).
The Corporate Transparency Act (CTA) most likely applies to you or someone you know. Failure to comply with this egregious and overreaching act will criminalize the failure and fine them into eventual bankruptcy. I suppose you can see McCartha Law, LLC is against this act as it applies to those of us who are small to medium businesses as it is conceivable that it could criminalize up 34 million of us in the U.S. who are otherwise law abiding citizens and for what — not registering ourselves with the federal government so we can “show law enforcement our papers”.
Beginning January 1, 2024, the US Corporate Transparency Act (CTA) will require “reporting companies” to submit a report to the Financial Crimes Enforcement Network (FinCEN) containing personal information about the reporting company’s “beneficial owners.” Reporting companies formed before January 1, 2024, will have until January 1, 2025, to file their initial report with FinCEN (hence it seems that it is a good idea to form your LLC now so you have more time to report). Willful failure to comply with reporting obligations can result in steep financial penalties. Proposed regulations issued on September 27, 2023, extend the period for which reporting companies formed on or after January 1, 2024, and before January 1, 2025, must file their initial report to within 90 days of the company’s formation. Reporting companies formed on or after January 1, 2025, must file an initial report within 30 days of the company’s formation.
What is the CTA?
It is allegedly the U.S. government’s attempt to peek into every business and see who is benefiting from it so it can “combat terrorism and money laundering.” Of course, the gov’t uses higher sounding and more self-serving words than I just used to explain their motives. Consequently, we are now involved in a nation of “show me your papers” or go to jail and be fined.
Who does it apply to?
The CTA imposes certain reporting requirements on various types of business entities, particularly those that are involved in forming new legal entities or maintaining existing ones.
What are the key requirements of the Corporate Transparency Act:
- Reporting Beneficial Ownership Information: Under the CTA, certain entities are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Beneficial owners are individuals who directly or indirectly own or control 25% or more of the ownership interests in a reporting entity or exercise substantial control over the entity.
- Covered Entities: The CTA applies to various types of entities, including corporations, limited liability companies (LLCs), and similar legal structures. Exemptions are provided for certain entities, such as publicly traded companies (big companies), registered investment companies, and charitable organizations.
- Initial Reporting: When a covered entity is formed or registered, it must submit a report to FinCEN that includes information about its beneficial owners. This information typically includes names, addresses, dates of birth, and a unique identifying number from an acceptable identification document, like a driver’s license or passport.
- Reporting Updates: Covered entities must also submit updates to FinCEN if there are changes in their beneficial ownership information. This is required within one year of any change.
- Access to Information: Information provided to FinCEN is not (supposed to be) publicly available but can be accessed by law enforcement agencies, financial institutions with customer due diligence obligations, and certain government agencies for authorized purposes (no one knows what this means but it usually means the gov’t makes the rules up as it goes along to its own benefit).
- Penalties: Failure to comply with the reporting requirements of the Corporate Transparency Act can result in penalties. The Act outlines potential civil and criminal penalties for non-compliance. Here are some of the penalties that can be imposed:
- Civil Penalties:
- For individuals, civil penalties can be up to $500 per day for each day of non-compliance.
- Criminal Penalties:
- Willful violations of the Corporate Transparency Act can result in criminal penalties, including fines of up to $10,000 and imprisonment for up to two years.
- It’s important to note that these penalties are subject to change, and you should consult the most current legal sources or the relevant government agencies for the latest information and updates on the Corporate Transparency Act and its penalties. Additionally, individuals and entities subject to these reporting requirements should consult legal counsel to ensure compliance with the law.
Although we disagree with the CTA as it applies to small businesses, we are still here to help you both comply with the CTA and to set up your LLC soundly now — so go ahead and call us and we’ll form your LLC now and then in 2024 we will find a way to navigate the CTA with you.