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Corporate Transparency Act: The New Horizon of Business Ownership Transparency

The 2024 Corporate Transparency Act and How it Affects Your Business

As we approach the new year, a significant shift in federal compliance requirements for businesses across the United States is on the horizon. Set to take effect on January 1, 2024, the Corporate Transparency Act (“CTA”), enacted by the U.S. Congress, introduces new reporting obligations under the beneficial ownership information (“BOI”) regime. This initiative, led by the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury, targets enhancing transparency in the business world, particularly focusing on disclosing beneficial ownership information.

Understanding the Change:

Starting January 1, 2024, the CTA mandates most U.S. entities, including corporations, limited liability companies (“LLCs”), and other similar business structures, to report their beneficial ownership information to FinCEN. These reports aim to uncover the identities of individuals who ultimately own or control these businesses, curtailing illicit activities like money laundering, fraud, and tax evasion. 

Who is Affected?

The new regulation casts a wide net, encompassing a broad spectrum of businesses, albeit with some specific exceptions. Specifically, a “reporting company” includes all U.S. and non-U.S. entities and entities formed under state or tribal laws except:

  • Publicly Traded Companies. Entities issuing securities registered under or required to file supplementary information under the Securities Exchange Act of 1934.
  • Governmental Entities. Entities established under the laws of the United States, an Indian Tribe, a State, or a political subdivision that exercise governmental authority.
  • Financial Institutions. Includes banks, federal and state credit unions, bank holding companies, and savings and loan holding companies, as defined by federal law​​.
  • Securities and Investment Entities. Includes registered money transmitting businesses, brokers or dealers, exchanges or clearing agencies, and entities registered with the SEC under the Securities Exchange Act of 1934, as defined by federal law.
  • Insurance Companies. Companies defined in the Investment Company Act of 1940 and authorized insurance producers subject to state supervision.
  • Commodity and Futures Entities. Includes entities registered under the Commodity Exchange Act, including futures commission merchants and swap dealers.
  • Public Accounting and Utility Firms. Public accounting firms registered under the Sarbanes-Oxley Act of 2002 and public utilities within the U.S.
  • Financial Market Utilities. Includes entities designated under the Payment, Clearing, and Settlement Supervision Act of 2010.
  • Pooled Investment Vehicles. Operated or advised by certain financial institutions or investment advisers.
  • Tax-exempt organizations. Includes organizations exempt from tax under section 501(c)  of the Internal Revenue Code, including political organizations exempt under section 527(a), and trusts described in section 4947(a) of the Internal Revenue Code.
  • Medium to Large Businesses. Includes entities with more than 20 full-time employees in the U.S., more than $5 million in gross receipts or sales, and an operating presence at a physical office within the U.S.
  • Inactive and Non-Operating Entities. Includes entities in existence for over one year, with no active business and no direct or indirect ownership by a foreign person, that have not experienced a change of ownership in the past 12 months and do not hold any kind of assets, including interest in another entity.
  • Subsidiaries of Exempt Entities. Includes any entities not explicitly covered in the above exemptions that are owned or controlled, directly or indirectly, by entities exempt entities to prevent redundant reporting for subsidiaries or affiliates where the higher-level entity is exempt from reporting requirements. 
  • Other Exceptions. Entities specifically exempted by the Secretary of the Treasury in concurrence with other officials because public reporting does not serve the public interest or is instrumental in combating financial crimes.  

Compliance Timeline:

  • Entities created or registered before 2024 must file their initial reports by January 1, 2025.
  • Entities created or registered in 2024 must file within 90 days of creation or registration.
  • Entities created or registered on or after January 1, 2025, must file within 30 days of creation or registration.  

The Reporting Process:

To comply, affected entities must file reports electronically through FinCEN’s website. These reports should include details about individuals with at least a 25% stake in the company or those holding significant control or authority over the company’s operations.

Potential Challenges and Controversies:

While the CTA intends to enhance transparency and deter illicit financial activities, it has not been without its criticisms and challenges. The National Federation of Independent Business (“NFIB”) has raised concerns about FinCEN’s potential overreach in implementing the legislation, arguing that it places undue burdens on small businesses. They emphasize the complexity and potential penalties associated with noncompliance, highlighting small business owners’ general lack of awareness about these upcoming changes.

Our Commitment:

At Trembly Law Firm, we understand that navigating these new regulations can be daunting. Our team is dedicated to providing you with the necessary guidance and support to ensure compliance. We will continue to monitor the development of these regulations and keep you informed of any significant updates or changes.

Stay Informed, Stay Compliant:

In closing this year, we urge all our clients to familiarize themselves with these new requirements and begin preparing for compliance. For more detailed information and assistance, feel free to contact our office. Together, we can ensure that your business stays ahead of these regulatory changes and continues to thrive in 2024 and beyond.

Elias Correa Menendez, Esq.

Partner & Chief Legal Officer

Born and raised in San Juan, Puerto Rico, Elias had always had an interest in practicing law. After receiving his JD from the Catholic University of Puerto Rico, magna cum laude in 2002, and his LL.M. from Tulane University in Commercial Law, Elias was mentored by an experienced business attorney and has since then had a passion for working with entrepreneurs and businesses of all sizes. He is now a Partner and the Chief Legal Officer at Trembly Law Firm.

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