Opinion: How to comply with new law requiring more transparency for business owners

Kaufman practices law in Carlsbad and lives in Irvine.

On Jan. 1, 2024, the Corporate Transparency Act became effective. The Corporate Transparency Act requires certain business entities to file a beneficial ownership information report with the Financial Crimes Enforcement Network (FinCEN), a division of the United States Department of Treasury. The stated purpose of the Corporate Transparency Act is to make it more difficult for bad actors to conceal financial transactions through shell companies or complex ownership structures. Because the law applies regardless of the value of the business, small business owners are unwittingly impacted by this new law.

Under the Corporate Transparency Act, companies required to report include limited liability companies (LLC), limited liability partnerships (LLP), corporations and entities otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or “Indian tribe” and certain foreign companies. There are 23 exceptions to the reporting requirements, meaning that certain types of companies do not need to report. Generally, those exempt from reporting are publicly traded companies, nonprofit entities and certain large operating companies. To determine whether your company must report, the Financial Crimes Enforcement Network created a checklist that may be found on its website.

If the company is not exempt from reporting, then the company must report its full name, any trade name or “doing business as” (dba) name, complete U.S. address, the state, Indian tribe, or foreign jurisdiction where the company was formed, the state or Indian tribe of first registration for foreign reporting companies, and IRS Taxpayer Identification Number/Employer Identification Number.

In addition, each beneficial owner of the company (someone who either exercises substantial control over the company, such as a president or executive officer, or who owns or controls at least 25 percent of the company), must report their full name, date of birth, address, and their identifying number and issuing jurisdiction, such as a driver’s license number. In addition, individuals must submit a photo of a U.S. passport, driver’s license, or other government issued identification.

Sometimes, people who would otherwise be considered a beneficial owner may be exempt from reporting.

If a company was created or registered on or after Jan. 1, 2024, it will also need to report the company applicants. A company applicant is the person who directly files the document that creates or registers the company; and if more than one person participates in the filing, the individual who is primarily responsible for directing or controlling the filing. So, for example, if your attorney filed the document that created your company, your attorney is a company applicant and must be included in your report.

The required information must be electronically reported on the Financial Crimes Enforcement Network’s website fincen.gov/boi. After completing the report, be sure to save the network’s submission confirmation.

Reporting requirements vary depending on when the company was created or registered. According to the Financial Crimes Enforcement Network, you must report as follows:

• If the company was created or registered prior to Jan. 1, 2024, you have until Jan. 1, 2025, to report.
• If the company is created or registered in 2024, you must report within 90 calendar days after receiving notice that the company’s creation or registration is effective, whichever is earlier.
• If the company is created or registered on or after Jan. 1, 2025, you must report within 30 calendar days after receiving notice that its creation or registration is effective.
• Any updates or corrections to beneficial ownership information previously filed with the Financial Crimes Enforcement Network must be submitted within 30 days.

There is no annual reporting requirement. After a company files its initial report, the company need only file additional reports to update or correct information.

If a company fails to report, the Financial Crimes Enforcement Network may assess a $591-per-day penalty (up to $10,000) and possible criminal penalties.