LLC’s Require Federal Reporting
Attention RISE Business Academy Graduates:
Effective January 1, 2024, the Corporate Transparency Act (“CTA”) requires reporting companies to identify their beneficial owners to the United States Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). The CTA marks a dramatic shift in American business law; traditionally, a business owner was required to give only minimal information to a secretary of state’s office in order to start a business, and no information at all to the federal government, except as part of a business’s tax return, or if the owner sought to participate in certain industries (for example, selling publicly traded stock, or electing non-profit status with the IRS). The CTA inverts this traditional understanding, requiring all new entities to identify their beneficial owners to FinCEN unless they are exempted.
A reporting company is any entity or trust that is formed or qualified to do business by the filing of a document (i.e., articles of incorporation, certificate of organization, etc.) with the secretary of state or similar office of any state or tribe. This broad definition covers corporations, limited liability companies, limited partnerships and other entities and statutory trusts formed or qualified to do business in the United States. The CTA exempts 23 categories of entities, but most of these categories will not apply to small service or retail businesses. In general, they apply to large companies (with 20 more more employees and more than $5,000,000 in revenue), or to companies that already identify their owners to the federal government (for example, publicly traded companies, some accountants, and registered non-profits).
Reporting companies that do not meet one of the CTA’s exemptions are required to report identifying information about their “beneficial owners”, generally those individuals who directly or indirectly (i) exercise substantial control over a reporting company, or (ii) own or control at least 25% of the reporting company’s ownership interests. A person has substantial control over a reporting company if such person controls the fundamentals of the company’s business, or is a “senior officer” (a president, CEO, a manager of a limited liability company, or a person exercising similar powers). As a practical matter, for most small businesses with one or two owners, the owner or owners will be the only beneficial owners that have to be identified.
Reporting companies that were in existence prior to January 1, 2024 will have until January 1, 2025 to file their initial reports. Any reporting company created or registered on or after January 1, 2024 and before January 1, 2025 will have 90 days from the day it receives notice that its creation or registration is effective to file its initial report. After January 1, 2025, any new reporting company will have 30 days to file its initial report. After filing an initial report, reporting companies must report any changes to beneficial owner information within 30 days of the change, and if a reporting company discovers any error in a report, it must file a corrected report no later than 30 days after discovering the error. It is not optional to file a report if your company is not exempt; willfully refusing to file a report, or willfully filing an incorrect report, is a crime.
You can file your initial report and any updates electronically through a secure filing system available via FinCEN’s website. FinCEN’s website includes a number of helpful resources, including links to an FAQ, a Small Entity Compliance Guide, and step-by-step instructions for filing. If you have any questions, please feel free to reach out to the Director of RISE Business Academy, Dr. TJ Dickson, or to our volunteer attorneys: Dan McDowell and Erin Artz.
