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CORPORATE TRANSPARENCY ACT

Business Owner accessing the Financial Crimes Enforcement Network online to learn about filing

CORPORATE TRANSPARENCY ACT PREPARING FOR THE FEDERAL DATABASE
OF BENEFICIAL OWNERSHIP INFORMATION

By Kelly Bagla, Esq.

The Anti-Money Laundering Act of 2020, which is part of the National Defense Authorization Act for Fiscal Year 2021 and includes the Corporate Transparency Act, became law on January 1, 2021. The Corporate Transparency Act requires certain business entities to file, in the absence of an exemption, information on their “beneficial owners” with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury.

The information will not be publicly available, but FinCEN is authorized to disclose the information:

  1. to U.S. federal law enforcement agencies,
  2. with court approval, to certain other enforcement agencies,
  3. to non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency, and
  4. with consent of the reporting company, to financial institutions and their regulators.

What is a Reporting Company?

A reporting company is a corporation, limited liability company, or other similar entity that is created by the filing of a document with the secretary of state or similar office under the laws of a state. The reporting company does not include the following entities, which are exempt entities from reporting:

  • an issuer of securities registered under Section 12 of the Securities Exchange Act of 1934;
  • an entity that exercises governmental authority on behalf of the United States;
  • a bank including credit unions;
  • a broker or dealer registered under Section 15 of the Securities Exchange Act of 1934;
  • an investment company registered with the SEC;
  • an investment advisor registered with the SEC;
  • an insurance company;
  • a public accounting firm registered under the Sarbanes-Oxley Act of 2002;
  • a public utility company;
  • a tax-exempt 501(c)
  • certain corporations, limited liability companies or other similar entities that operate exclusively to provide financial assistance to tax-exempt 501(c) entities;
  • an entity that employees more than 20 employees on a full-time basis in the United States, demonstrating more than $5,000,000 in gross receipts or sales, and has an operating presence at a physical office within the United States;
  • a corporation, limited liability company or other similar entity in existence for over one year, that has not engaged in active business, that is not owned by a foreign person, that has not in the preceding 12 months experienced a change in ownership or sent or received funds in an amount greater than $1,000, and that does not hold any assets; and
  • any entity that the Secretary of the Treasury determines should be exempt because requiring beneficial ownership information would not serve the public interest.

Who is a Beneficial Owner?

A beneficial owner is defined as any individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the reporting company.

Who is an Applicant?

The Corporate Transparency Act defines the term applicant to mean any individual who files an application to form a corporation, limited liability company, or other similar entity under the laws of a state. An applicant must also report to FinCEN along with the beneficial ownership information.

What information must be reported?

A reporting company must provide the following information:

  • its full legal name;
  • any trade or “doing business as” names;
  • a complete current address of the principal place of business;
  • jurisdiction of formation; and
  • Employer Identification Number (EIN).

A beneficial owner must provide the following information:

  • full legal name;
  • date of birth;
  • current residential street address,
  • an identification number such as a passport, driver’s license, or a FinCEN identification number; and
  • an image of the document from which the identifying number was obtained.

When is the report required to be filed with FinCEN?

Any domestic reporting company created on or after January 1, 2024, and before January 1, 2025, must file a report within 90 calendar days of the entity formation. Any domestic reporting company created on or after January 1, 2025, must file a report within 30 calendar days of the entity formation. Any domestic reporting company created before January 1, 2024, must file a report by January 1, 2025.

What are the penalties for violating the Corporate Transparency Act?

It is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information to FinCEN, or willfully fail to report complete or updated beneficial ownership information. Any person violating the reporting requirements is liable for civil penalties of not more than $500 for each day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000. The Corporate Transparency Act represents a significant development in the responsibility for collecting and reporting beneficial ownership information. While this new law is intended to provide law enforcement with beneficial ownership information for the purpose of detecting, preventing, and punishing terrorism, money laundering and other misconduct accomplished through business entities, it places a significant burden on small businesses.


Becoming a business owner, you control your own destiny, choose the people you work with, reap big rewards, challenge yourself, give back to the community, and you get to follow your passion.  Knowing what you’re getting into is smart business because the responsibility of protecting your business falls on you.

For more information on how to legally start and grow your business please visit our website at www.BaglaLaw.com

Disclaimer:  This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.