The Corporate Transparency Act (CTA) requires federal reporting of ownership interests in small companies. Companies that must report are all entities formed by registration with the Secretary of State (or similar state office in another state.) This includes Limited Partnerships, Limited Liability Partnerships, Corporations, including “S Corps,” and Limited Liability Companies. It does not include sole proprietorships. Large operating companies with more than 20 full-time U.S. employees and other large companies are exempt.
CTA is intended to make it harder for bad actors to hide money using shell companies. But, the law is so broad that many owners of small businesses or income-producing properties, just like you, will also have to report.
If you own an apartment building in a Limited Partnership or LLC, or own a business as an S-Corp, or have partners in a professional practice that is a Limited Liability Partnership, CTA reporting probably applies to you. If CTA applies, the company’s “beneficial owners” are required to submit their names, dates of birth, street address, and a form of identity that can be a U.S. Passport, Dri-ver’s License, or other government -issued ID Card. Beneficial owners are defined as individuals who directly or indirectly own or control at least 25% of the ownership interests of the company, or any individual who exercises substantial control over the company.
CTA was signed into law in 2021. The reporting requirements started to kick in this year in 2024 for new entities. For all affected companies formed before 2024, the initial reporting is due on January 1, 2025, just two months away. Unfortunately, many people are not aware of this sweeping law.
Required information must be reported to the Financial Crimes Enforcement Network (FinCEN). For more information, FinCEN has a Small Entity Compliance Guide available at www.fincen.gov/boi/small-business-resources.
Planning Ahead Column
By Lisa C. Alexander, Esq.
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