The Corporate Transparency Act

You may have heard that new federal reporting requirements for owners of business entities went into effect on January 1, 2024.  Please allow us to explain what you may be required to do to comply and how we are able to assist you.

What is the Corporate Transparency Act?

The Corporate Transparency Act is intended as an anti-money laundering and financial crime measure.  It requires the "beneficial owners" of corporations, LLCs, and other business entities operating in the United States to provide certain basic information about themselves to FinCEN, an agency of the U.S. Department of the Treasury.  This information will be kept in a database which will be available to law enforcement and to banks but not to the general public.

Most closely-held business entities in the United States, including most of the business entities our firm forms and works with regularly, are considered "reporting companies" and are covered by the new law.  There are certain narrow exceptions, but these do not apply to most of our clients.  We strongly advise consulting with us or other knowledgeable professionals before assuming that an exception may apply to you and that you are therefore not required to file.

It is worth noting that publicly-traded entities are not covered by the law, primarily because their ownership is already public information.  Thus, you are not required to report just because you own publicly traded stock, or are a trustee or beneficiary of a trust that owns publicly-traded securities.  If you are receiving this message, however, you are a business client of our firm whom we believe is likely subject to a filing requirement.

The penalties for failure to comply with the law are substantial.  Civil penalties for failure to file, or update, the information can be as high as $10,000, and criminal penalties including prison sentences are also possible.

Who Must Report

Reporting companies must provide information about themselves, as well as about two classes of "beneficial owner" individuals involved with them.  First, individuals who either own or control at least 25% of the reporting company's ownership interests must report.  Second, individuals who exercise "substantial control" over the reporting company must also report.  This second requirement will generally include managers (of manager-managed LLCs), most members of member-managed LLCs (regardless of the percentage owned), directors, officers, and anyone else with substantial influence over the company's operations.

The rules are designed to "look through" entity structures and require the individuals who ultimately control the entities to be disclosed.  In the case of trusts which own interests in reporting companies, the trustee must be disclosed, and in many instances current beneficiaries must be disclosed as well.

When to Report

For entities formed before January 1, 2024, an initial report is due by January 1, 2025, meaning that existing companies have one year from the effective date to file.

For entities formed on or after January 1, 2024, an initial report is due within ninety (90) days of formation.

In addition, any change to the information on file must be updated within thirty (30) days of the change.  Likewise, any inaccuracy, once known to the reporting company, must be corrected by the company within thirty (30) days of becoming known.  Our firm often will not know, and not have any way to know, about a change, so it is very important for beneficial owners of reporting companies to be aware of the requirement to update this information.

What to Report

Reporting companies must report: (1) full legal name; (2) any trade or d/b/a names; (3) complete current business address; (4) state of formation; and (5) IRS-issued employer identification number (EIN).

Beneficial owners must report: (1) full legal name; (2) date of birth; (3) complete residential street address; (4) a unique identifying number from a government-issued photo ID, that is, a passport or state-issued driver's license (and the state of issuance); and (5) an image of such government-issued photo ID.

Where to Report

Reports are filed electronically on the FinCEN website, at the following web address:

https://boiefiling.fincen.gov/

The website is relatively well-designed and navigable.  Some of our clients may be comfortable enough with using this website to file their initial reports on their own.  If you choose to do this, please simply let us know what reports you have filed for our records.

Our Firm's Involvement

Our firm will be glad to assist you with the required initial filing consistent with the terms of your current engagement with us; however, if you would like our assistance, you must contact us, provide the necessary information, and ask us to handle the filing for you.  We cannot handle the initial filings for your company unless we gather certain information from you.  Until very recently, we did not gather all of the information needed from each client, and even if we had, we would have no way to know whether it might be outdated.  

We have developed a one-page standard form, which beneficial owners can complete via DocuSign, to provide us the necessary information.  This form also provides a means for you to upload an image of your photo ID, which must be provided to FinCEN as part of the report.

Once an initial report is filed, we cannot have any obligation to keep the information on file updated unless you provide us the updated information and ask us to make the updated filing.

Registered Agencies

Historically, our firm has served as registered agent for many of our clients' South Carolina business entities.  In recent years, because the reporting requirements were so minimal, we have performed this function free of charge in many instances where the entity was not registered in any other state.  Regrettably, because of the additional reporting obligations created by the Corporate Transparency Act and related administrative costs, we cannot continue to serve as a South Carolina registered agent without charge.

We will be separately contacting all our clients for whom we are serving as a South Carolina registered agent in the coming days regarding transferring the registered agency.  There are companies which can perform this function far more efficiently and cost-effectively than we are able to do.  (Clients with entities in other jurisdictions not registered to do business in South Carolina already have third-party registered agents, and are not affected.)

Conclusion

We will be glad to assist you with filing the initial report for your existing company or companies, and to answer any questions you may have regarding these requirements.  Please contact us at (843) 202-4472 or via e-mail at info@swwlc.com should you wish to discuss these matters further.  Thank you for your continued confidence in us.

Seth W. Whitaker, Ltd. Co. is a personalized trusts and estates and business law firm for individuals, families, professionals, and entrepreneurs, serving clients throughout the Carolinas.  This message is not legal advice, and no attorney-client relationship is formed by reading it.  We hope you will contact us at (843) 202-4472 or info@swwlc.com if you would like to discuss your specific situation.