This blog post is not legal advice. For how new legislation affects your small business, consult with a lawyer. Information here is general and may not apply to your specific situation.

This new law has already taken effect, yet nobody is talking about it. And if you own a small business through an LLC (or another entity), it already applies to you.

The new law we’re talking about is the Corporate Transparency Act (or CTA for short). But what exactly is the CTA? And what does it require people to do? Let’s walk through these new requirements.

In 2021, Congress passed the CTA to combat illegal activities such as money laundering and terrorist financing. And because many states don’t require business owners to report their personal information, it’s hard for the government to access it. But now the government wants to know. The CTA took effect on January 1st of this year. And if you own a small business through an entity, the CTA requires you to report three pieces of beneficial ownership information (or BOI) to the Financial Crimes and Enforcement Network (or FinCEN) of the U.S. Department of the
Treasury.

Reporting Company Information

The first type of BOI is the reporting company information. A “reporting company” is any company, whether it is domestic or foreign, that is formed by filing a document with the secretary of state (or a similar State office), or an Indian tribe. These reporting companies must
report the following information to FinCEN:

1. The reporting company’s name, and any trade names or DBAs (if applicable)
2. The business street address
3. The formation jurisdiction, and
4. A “unique business number” (which can be the company’s EIN number from the IRS)

If you own a business through an LLC (or another entity), your entity is most likely going to be a “reporting company.” That is unless one of the following reporting company exemptions apply.

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Reporting Company Exemptions

There are 23 types of reporting companies that are exempt from reporting information to FinCEN. But the most important exemption is the “large operating companies” exemption. An entity falls into this category if:

1. It employs 21 or more employees in the US
2. It has more than $5 million in gross receipts or sales in the US, and
3. It has a physical office in the US

If a company meets all three requirements, they do not need to report their BOI to FinCEN. But if someone starts out thinking that they will have at least $5 million or more in gross sales, they will still need to file since they have no proof of their lofty goal.

Beneficial Ownership Information

The second type of information is beneficial ownership information. A “beneficial owner” is someone who owns at least 25% of the company, or someone who exercises “substantial control” over the company. The “substantial control” requirement is broad. It can include managers, directors, officers, or anyone else (including lenders, with granted powers) who can make decisions for the company. Companies must submit the following pieces of beneficial ownership information to FinCEN:

1. The beneficial owner’s name
2. The beneficial owner’s birthdate
3. The beneficial owner’s residential or business street address, and
4. A “unique identifying number” from a passport or driver’s license (with an image)

If you own more than 25% of an entity, you automatically qualify as a beneficial owner. And if you exercise any management control over the entity, regardless of your ownership percentage, you will qualify as a beneficial owner under the “substantial control” requirement.

Company Applicant Information

The third type of BOI is the company applicant information. A company applicant is someone who is responsible for submitting these reports to FinCEN. Because our business Corporate Direct will submit these reports on behalf of our clients, we are deemed to be a company applicant. However, FinCEN only requires this information for entities formed after January 1, 2024.

FinCEN requires the following pieces of company applicant information:

1. The company applicant’s name
2. The company applicant’s birthdate
3. A business or residential street address, and
4. A driver’s license or passport (with a document number and an image)

If you form an entity after January 1, 2024, you will need to report this company applicant information to FinCEN. And we here at Corporate Direct can report this information for you. Beware of companies who will file your articles with the state but won’t file their information with the feds. They are breaking the law.

When to File

The timing to file these reports depends upon when the reporting company was formed.

• If your reporting company was formed before January 1, 2024, you have one year (or until December 31, 2024) to report your information to FinCEN. (See the note below.)
• If your reporting company was formed between January 1, 2024 and December 31, 2024, you have 90 days to report your information to FinCEN.
• If your reporting company was formed after January 1, 2025, you only have 30 days to report your information to FinCEN.
• When your reporting company changes ownership, a new mailing address, or someone discovers an error in a previous report, you only have 30 days to file the corrected reports.

Penalties For Not Filing

The CTA has serious penalties. If you don’t report this information, you can face up to $10,000 in fines and/or 2 years in jail.

The Worst Part of the CTA

Very few people are discussing the CTA. However, it already places a burden on small business owners across the country. And the worst part is that many registered agent services will not report their client’s BOI to FinCEN. Even some attorneys have told their clients not to worry about the CTA. Because there are severe punishments for not reporting, this opens up their clients to unnecessary liability.

However, we here at Corporate Direct are very concerned about the CTA. In order to avoid the CTA’s fines and penalties, we can prepare your initial and amended reports and submit them to FinCEN. For more information on the CTA and other business topics, head on over to CorporateDirect.com or check out Corporate Direct’s YouTube channel.

Ted Sutton Bio

Ted Sutton is an attorney who works for Corporate Direct, Inc. He works alongside his father Garrett Sutton, a Rich Dad Advisor who has written several books in Robert Kiyosaki’s Rich Dad Series. Ted is the author of “Five Tricks To Teach Your Kids About Money,” which you can download for free here.

Corporate Direct Bio

Corporate Direct is a professional entity formation and registered agent service that has helped thousands of investors and business owners protect their assets. Corporate Direct also prepares and submits BOI reports for their clients under the Corporate Transparency Act (CTA).

For more information on the CTA and other financial matters, head on over to CorporateDirect.com, or check out Corporate Direct’s YouTube channel.