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The Corporate Transparency Act (CTA) was enacted into law on January 1, 2021 as part of the 2021 National Defense Authorization Act. This mandate requires domestic and foreign legal entities to file a report with the Division of the Department of Treasury called the Financial Crimes Enforcement Network (FinCEN), which also regulates it. The report must provide personal information about the entities’ individual beneficial owners and applicants with the intent of preventing corrupt actors, terrorists, and criminals from laundering money in the United States.

Despite the Corporate Transparency Act being passed in 2021, FinCEN’s infrastructure to collect information has not been established. However, it is anticipated that the reporting system will come into effect in late 2022 or early 2023. 

In the meantime, businesses impacted by the new regulation, also referred to as “reporting entities”, can begin planning and preparing for compliance with the Corporate Transparency Act.

Follow this step-by-step guide to determine what your company should do now as you prepare for the reporting requirement to go into effect.

 

Step One: Identifying If Your Business Must File Under the Corporate Transparency Act

 

Under the new requirement, only “reporting companies” are required to file a report. A reporting company is classified as any legal entity that is:

  • Created by the filing of a document with the secretary of state or a similar office under the law of a State or Indian Tribe
  • Formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a State or Indian Tribe

These criteria include but are not limited to corporations, LLCs, most partnerships, certain trusts, and other entities. 

 

Step Two: Determining If Your Business Qualifies for an Exemption Under the Corporate Transparency Act

 

Under the Act, every entity is considered a “reporting company” unless an exemption applies. The Corporate Transparency Act outlines 23 exemptions for reporting companies. Generally, these exemptions apply to “large operating entities”. In this case, larger entities refer to businesses with a fiscal presence in the United States that have both more than 20 full-time employees and more than $5 million in gross receipts or sales in the prior fiscal year as reported to the Internal Revenue Service. The exemptions also include entities that are already subject to significant state or federal regulation, such as insurance companies, banks, and public companies.

Note: If the company qualifies for an exemption, it’s not a reporting company under the CTA and thus does not need to comply with the reporting requirements.

 

Step Three: Identifying Your Beneficial Owners and Company Applicants

 

Entities identified as a “reporting company” must provide FinCEN with personal identifying information about all of their beneficial owners and company applicants. Therefore, once you’ve verified that your company is a non-exempt “reporting company”, you can begin identifying your beneficial owners and company applicants. 

A beneficial owner is any person who either directly or indirectly exercises substantial control over the reporting company, or owns at least 25% of its ownership interests. For a domestic reporting company, a company applicant is any individual who files the document that forms the entity. And for a foreign reporting company, the company applicant is any individual who files the document that first registers the company to do business. In both cases, the proposed regulation specifies that anyone who directs or controls the filing of the relevant document by another would also be a company applicant.

 

Step Four: Gathering the Required Information

 

After identifying your beneficial owners and company applicants, the next step is to collect the personal information about the beneficial owners and company applicants that must be reported to FinCEN. In addition, you’ll also need to gather information about the reporting company itself. Let’s break down the information required in both instances.

 

Beneficial Owner’s and Company Applicant’s Personal Information 

There are four pieces of required information for each beneficial owner and company applicant:

  • Full name
  • Date of birth
  • Current residential address
  • Unique identifying number from an acceptable document (passport, state ID card, or driver’s license)*

*Note: The reporting company must provide an image of the identification document, showing both the identifying number and a photograph of the person. 

Regarding the unique identifying number, beneficial owners and company applicants can opt to apply for a FinCEN identifier, a unique number FinCEN assigns to an individual. If a beneficial owner or company applicant obtains a FinCEN identifier, the FinCEN identifier is included in the report in place of the unique identifying number.

 

Reporting Company’s Information

There are five pieces of required information for the recording company:

  • Company’s full name
  • Any trade or doing business as (DBA) names
  • Business’ street address
  • Date of formation (for domestic companies only)
  • First date of registration (for foreign companies only)
  • IRS Taxpayer Identification Number, DUNS numbers, or legal entity identifier

*Note: The reporting company can also choose to obtain a FinCEN identifier by submitting an application with or after the initial report.

 

Step Five: Creating a Document Tracking System

 

Now that you have gathered all of the required information, it’s wise to create a system for tracking all your documentation until the Corporate Transparency Act officially goes into effect. Once the CTA takes effect, existing reporting companies will have one year to file the initial report. Entities formed on or after the regulation’s effective date will have only 30 days to submit their first reports. Additionally, any updated data will have to be reported within 30 days of the change, and errors must be corrected within 14 days of discovery.

By using a centralized document tracking system, like EntityKeeper, you can quickly manage and access your business entities and compliance documents and data in real-time. And when the reporting period officially begins, you can locate all of your information with ease.

 

By planning and preparing for the Corporate Transparency Act to take effect, your organization can confidently comply with the new regulation and ensure that you meet the filing deadlines. An entity management solution, like EntityKeeper, can further streamline your processes to ensure ongoing compliance. Schedule a demo today to learn how!