If you’ve formed a limited liability company (LLC) or corporation to operate your business or are thinking about doing so, you need to know about the Corporate Transparency Act(CTA).
Enacted in January 2021, CTA will end business owners’ ability to form business entities without revealing their identities to the government.
The new law intends to prevent the formation of anonymous shell companies for illegal purposes. These are things like money laundering and different tax evasion schemes. But the transparency rules apply to all small LLCs and corporations, including your legitimate business.
Who?
For the first time, LLCs and corporations will have to file with the federal government when formed. The CTA applies to both new and existing LLCs, corporations, and other business entities. So if you have an entity or are thinking about forming one, you need to know about the CTA requirements.
What?
When forming an LLC or a corporation, the new law requires you to provide the names, addresses, and other information for the entity’s real “beneficial” owners. You provide the information to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN)—the Treasury Department’s financial intelligence unit.
Individuals and businesses form two million new LLCs and corporations each year, so there will be much new paperwork.
At least five million existing LLCs and corporations will have to provide the same information and keep it updated.
When?
The program begins in January 2022. Existing LLCs and corporations have until January 2024 to comply.
Not all LLCs and corporations are subject to the new law—larger businesses are exempt.
What About The Information?
FinCEN will not make the ownership information available to the public. But the information will be available to federal, state, and local law enforcement agencies, including the IRS.
Takeaways
Here are five things to know from this article:
- The days of complete anonymity for the owners of LLCs and corporations are coming to an end because Congress has passed the Corporate Transparency Act to help combat the use of shell companies for money laundering and other illegal purposes.
- Starting in 2022, people forming many new LLCs and corporations will have to provide some basic information about the entity’s real beneficial owners to FinCEN. Existing LLCs and corporations will have until January 2024 to comply.
- FinCEN will require the name, address, date of birth, and ID information for the individuals who either own over 25 percent of the entity or control the entity.
- Larger businesses are exempt from the reporting requirements, but smaller businesses and many start-up businesses are not exempt.
- FinCEN will make the beneficial ownership information registry available only to government agencies for law enforcement purposes. The general public will not have access to it.
March 2021
If you have any questions on this new law or need our assistance, please call me on my direct line at 509-543-7600 or send a request HERE.
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