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By: Alyssa Razook Wan
A new reporting obligation became effective January 1st of this year called the Corporate Transparency Act ("CTA"). Generally, the CTA requires direct reporting to the U.S. government disclosing individuals who control or benefit from certain types of companies. The CTA filing requirement is completely separate from state annual report or franchise tax filings and federal tax forms.
The CTA requires that each "reporting company" disclose the individuals who are "beneficial owners," that is, those individuals having a certain "beneficial interest" or "substantial control" with respect to the reporting company. The definition of a reporting company is broad and, subject to certain exceptions, includes any entity that is formed by filing with the Division of Corporations of Florida or any other state. Reporting companies include foreign entities, but only if the foreign entity is registered to do business in the United States by filing a document with the secretary of state or any similar office. Companies may be excluded on the basis of being inactive, but only if the company satisfies the definition of inactive pursuant to the CTA. Other exceptions exist as well.
A newly-formed reporting company will have 90 days to file the required CTA report, and companies in existence as of December 31, 2023 will have all of 2024 to file the required report. Further, if there are any changes to the reported information, such as a change of owner, transfer of an interest in the company, new managers appointed or other changes, the reporting company will have 30 days to report the current correct information.
The CTA provides for civil and criminal penalties for the willful failure to file timely and accurate reports. Penalties include fines of up to $500 per day while the violation continues, with a maximum of $10,000, and a criminal penalty of imprisonment for up to two years.
This alert summarizes certain key aspects of the CTA, but it is not a complete explanation of the new law. If you own an interest in a company, we encourage you to contact us to understand how this law applies to you and the steps that may be appropriate for you to take in order to comply.
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Disclaimer: The information set forth herein is for educational and informational purposes only and does not nor shall be construed to constitute legal advice, or the consummation of an attorney-client relationship.