The Corporate Transparency Act (CTA), which became effective on January 1, 2024, is a new federal law and regulatory scheme that will have a dramatic and widespread impact on millions of people. Millions of owners of LLCs, corporations, limited partnerships, and other similar entities will be required under the CTA to disclose personal information to the federal government regarding their ownership interests in business entities or face significant civil fines and potential criminal liability.

The CTA calls for the creation of a national database maintained by FinCEN that will identify, among other things, the beneficial owners of U.S. business entities. The stated purpose of the database is to combat financial crimes such as tax evasion, money laundering, sanctions evasion, terrorism, and other offenses. Any entity that meets the definition of a “reporting company” will be required to timely file a report with FinCEN identifying the “beneficial owners” including persons with “substantial control” of the entity. Entity owners must determine if they or the entities they own or control meet the definition of the above terms as defined under complex federal law and regulations.

Most closely held entities used for small businesses, estate planning, or real estate holdings will be classified as “reporting companies” under the CTA and will be required to submit filings to FinCEN. Certain entities are specifically exempted from registering as a reporting entity under the CTA. These include certain tax-exempt entities, inactive entities, and wholly-owned subsidiaries of exempt entities. There are also exemptions for entities already subject to federal reporting requirements, such as banks, credit unions, insurance companies, brokers or dealers in securities, and registered investment companies and advisors. Additional exemptions exist for large operating companies which (i) employ more than 20 full time employees in the U.S., (ii) maintain a physical operating location in the U.S., and (iii) report on prior tax returns more than $5 million in gross receipts or sales from U.S. sources.

Entities Formed Before January 1, 2024

  • Entities formed before January 1, 2024 are still subject to reporting requirements under the new law.
  • Owners of small businesses formed prior to January 1, 2024 will be required to ensure that a report is timely filed with FinCEN before the deadline of January 1, 2025.

Entities Formed After January 1, 2024

  • Owners of new entities formed after January 1, 2024 will be required to file a report with FinCEN within 90 days after formation of the entity. The CTA also requires a reporting company to file a subsequent report with FinCEN within 30 days of any material change in the information that the entity has previously submitted to FinCEN.
  • In other words, a single initial filing may not fully satisfy the requirements of the CTA, and reporting companies will be subject to ongoing requirements to provide updates and maintain the accuracy of filings with FinCEN.

Failure to file required reports with FinCEN within the applicable deadlines may result in a fine of $500 per day to a maximum of $10,000, and even criminal liability in some instances.

If you own any interest or have substantial control over a small business, corporation, limited partnership, LLC, or other entity, please consider contacting an attorney to determine what your compliance requirements are under the CTA. You may be required to submit a report with FinCEN in order to avoid a stiff fine or criminal liability.

The attorneys at Davenport Evans are ready to assist clients with inquiries regarding the CTA and your obligations under the new law.

This webpage is a complimentary service provided to the public by Davenport, Evans, Hurwitz & Smith, LLP. This communication is not intended to create nor does it constitute an attorney-client relationship. Because resolution of legal questions is fact specific, this content is provided for informational purposes only, not as legal advice. It is important to consult with and obtain advice from a licensed attorney for any specific situation. To request legal counsel, please contact Davenport, Evans, Hurwitz & Smith, LLP at 605-336-2880, or at 206 W. 14th Street, P.O. Box 1030, Sioux Falls, SD 57101-1030.