Business New Year's Resolution

A Business New Year's Resolution: Prepare for the Corporate Transparency Act.

Business owners and business lawyers should know that the Corporate Transparency Act takes effect on January 1, 2024. That means that 2023 will be the last year in which entrepreneurs and business lawyers will be able to form companies without almost simultaneously filing a beneficial ownership report.

When Are Beneficial Ownership Reports Due?

The Financial Crimes Enforcement Network of the U.S. Treasury - FinCEN - issued its Final Rule on beneficial access reports at the end of September 2022. That Final Rule established that reporting companies under the CTA will need to begin filing beneficial ownership reports with FinCEN on January 1, 2024.

Beginning on that date, any newly-formed reporting company will have only 30 calendar days to file an initial beneficial ownership report.

Reporting companies formed during 2023 or earlier will have until January 1, 2025 to file their first CTA reports.

What Must Be Included in a Beneficial Ownership Report?

Each beneficial ownership report will need to include five pieces of personally identifiable information about the reporting company's beneficial owners: (1) full legal name, (2) date of birth, (3) home residential address, (4) a unique identifying number (drivers license or passport), and (5) an image of the document that provides the unique identifying number.

Companies formed on January 1, 2024 or later will also need to include these same five pieces of personally identifiable information about the reporting company's "company applicant." The CTA defines "company applicant" as the individual who signed or was primarily responsible for the filing of the document that formed the reporting company (or that caused it to be registered to do business, in the case of a foreign reporting company).

When Must a Beneficial Ownership Report be Amended?

Once a reporting company files its initial beneficial ownership report, the reporting company is obligated to amend that report within 30 calendar days after any item of previously-reported information changes. This 30-day rule will require reporting companies to implement procedures to track the data covered by their beneficial ownership reports.

What Businesses Should Do in 2023

In 2023, business owners and their lawyers should prepare to be able to comply with the Corporate Transparency Act.

Each company should:

  1. Consult an attorney to determine if the entity is a "reporting company" as defined in the CTA;
  2. Evaluate whether the company is exempt from reporting under one of the 23 exemptions found in the CTA;
  3. Amend the company's governance documents (like a shareholders agreement for a corporation, or an operating agreement for a LLC) to empower a compliance officer and to obligate company owners to provide their personally identifiable information to the company for compliance purposes;
  4. Determine who are the company's beneficial owners;
  5. Establish a timeline for filing the company's initial report; and
  6. Establish a procedure for monitoring changes in previously-reported data so that the company can file an amendment within 30 calendar days after any change.

While business owners might be able to rest easy in 2023, they should start preparing for the challenging new world of CTA compliance that is now less than one year away.

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