This is Part 2 of a 3-Part series (Part 1: It’s Time to Get Prepared & Part 3: The Form) of information we are sending to our small business clients regarding the Corporate Transparency Act (CTA) and its impact on millions of small businesses. The CTA was passed by Congress a couple of years ago and the government has been ironing out the details since that time. Starting January 1, 2024, the Financial Crimes Enforcement Network (FinCEN), in an effort to track criminals and other bad actors who are laundering illicit funds through the United States using shell and front companies, will begin enforcement of a reporting requirement for small businesses. An overview of those reporting requirements was provided in our blog post and newsletter in September 2023.
First a quick correction for that prior posting. I incorrectly stated that companies may be exempt from the filing requirement if they have more than 20 employees OR make more than $5 million in revenue. It should have said that a company is exempt if it has more than 20 employees AND more than $5 million in revenue, plus several other requirements for exemption. FinCEN has provided a Guide for Small Businesses that details this more fully (https://www.fincen.gov/boi/small-entity-compliance-guide). Take a look at page 11 where it has a checklist for determining whether your company is a “large” company by their definition. Essentially, almost all small businesses that have formed a company by filing with their Secretary of State will need to file a beneficial ownership report to FinCEN.
FinCEN has provided very helpful answers to frequently asked questions which can be found at: https://www.fincen.gov/boi-faqs. In general, the answers are to questions about why there is a need to report, how to report, what to report, etc. It is probably easier to get through FAQs on their website than the Small Business Guide as there are charts and explanations of each part of the process. Who is a beneficial owner? What is a reporting company? What does “substantial control” mean? And who should I talk to for more information.
As of this writing, FinCEN has not yet sent samples of the reports that will need to be filed, starting January 1, 2024, for new businesses, but we will forward additional information to everyone once those have been provided. In the meantime, the offices of Secretaries of State around the country are gearing up to notify businesses of these reporting requirements. Here in Colorado, the Secretary of State’s office is the process of reviewing and determining how the office will comply with their obligation to notify business filers of the FinCEN reporting obligations when either forming a new entity or renewing registration of a current entity. They are looking at the contents of the notices they will be sending as well as changes that are needed to both new entity registration forms as well as the annual periodic reports required by the State.
Part III of this series on the CTA will be sent in late December, unless FinCEN does not provide updated information by that time. In which event, you will receive more information as we receive it from FinCEN. The Beneficial Ownership Reporting requirements are important to maintain regulatory compliance for your business, so please feel free to give us a call in the meantime if you have immediate questions or concerns.
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