By Lawrence Crowther, Esq., Partner with Wegman Hessler, a small business law firm

In January of 2022, the U.S. Treasury Department released the Corporate Transparency Act (CTA). Here is a link to information and a guide for small business owners on the topic: Corporate Transparency Act Guide. On September 30, 2022, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued its Corporate Transparency Act final regulations to formalize its requirements.

Corporate Transparency Act legislation creates a “beneficial ownership information” reporting requirement for businesses operating in the United States. A beneficial owner is defined as any individual who exercises substantial control over a reporting company, or who owns or controls at least a 25% stake in the company. Lawmakers hope this will help prevent the illicit use of shell companies by criminals, terrorists, human traffickers, and other bad actors.

According to a fact sheet issued by FinCEN, “The rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners—the persons who ultimately own or control the company, to FinCEN.”

• OWNERS OF NON-EXEMPT BUSINESSES CREATED BEFORE JANUARY 1, 2024, WILL NEED TO FILE THEIR INITIAL REPORTS AND OWNERSHIP DETAILS UNDER THE CTA REGULATIONS BY JANUARY 1, 2025.  We recommend that you do this sooner rather than later to ensure proper compliance. Here is a link that explains more about exemption. Here is a summary of the initial requirements: Corporate Update: Summary of the Corporate Transparency Act – Wegman Hessler Law Firm of Cleveland – from Business Law and Litigation to Estate Planning and Divorce Attorneys (wegmanlaw.com).
• Reporting companies, or those required to comply, will need to file information about each beneficial owner, including name, birth date, address and a unique identifying number, such as a taxpayer ID number.
• Companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports.
• Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.

According to the fact sheet, FinCEN is committed to implementing these statutory obligations in a “robust manner.” FinCEN continues to develop the infrastructure to administer these requirements, including the IT system that will be used for its database of store ownership information.

The goal of the reporting requirement is to build a database of business ownership to help national security, intelligence, and law enforcement agencies to go after criminals that use companies for illegal purposes. This latest rule is intended to increase the transparency of corporate ownership while strengthening U.S. national security.

This latest reporting rule is one of three rulemakings planned to implement the CTA by FinCEN. The organization plans additional legislation to: (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule.

The provisions of the CTA may affect businesses of different sizes and structures. It is generally advisable to consult legal counsel regarding the application, reporting requirements, and enforcement of the CTA to help navigate this new rule and others. Wegman Hessler’s team of business law attorneys are ready to assist you and your business with navigating these changes. If you have any questions or would like to learn more about how these changes may impact your organization, call us at 216-642-3342 and ask to speak with someone on our Business Services team.

Wegman Hessler, a small business law firm near Cleveland, Ohio, specializes in business law for business leaders, applying legal discipline to solve business problems to help business owners run smarter. For more than 50 years, this Cleveland business law firm provides full-service strategic legal counsel for closely held businesses. Learn more at www.wegmanlaw.com.