On January 1, 2021, the United States Congress passed the National Defense Authorization Act (NDAA). As part of the NDAA, several subsidiary anti-money laundering laws were passed. On January 1, 2024, one such law took effect. This law is the Corporate Transparency Act. This new law requires businesses created or registered to do business in the United States to report beneficial ownership information to federal authorities. However, there are exemptions to the reporting requirements, and the information required may differ depending on the company’s creation date. Therefore, many business owners are not sure whether they are required to report or, assuming they are subject to the reporting requirement, what information they should provide. If you have questions about whether you are required to report and what you may need to report, the experienced Arizona business attorneys with Harrison Law, PLLC may be able to assist you. Consider calling (480) 320-2310 to schedule an appointment to discuss your reporting options.

What Is the Corporate Transparency Act January 2024?

The Corporate Transparency Act, in effect from the beginning of January 2024, is the first United States law that requires most businesses to report their beneficial ownership. Under the new law, business entities must submit a report including the following information to the United States Department of the Treasury’s Financial Crimes Enforcement Unit (FinCEN):

  • Beneficial ownership information (BOI)
  • Information about the business entity, including who created or registered it to do business in the United States
  • Changes to previously reported information, if applicable

Per the International Association of Commercial Administrators (IACA), the information must be reported within one year after January 1, 2024 for businesses that existed previous to that date. Businesses created or registered on or after January 1, 2024, but before December 31, 2024 are required to report within 90 days of notification of the business formation becoming effective. Businesses created or registered on or after January 1, 2025, will have 30 days to make their report. Changes must in all cases be reported within 30 days.

What Is the Purpose of the Corporate Transparency Act?

The purpose of the Corporate Transparency Act is two-fold. One purpose is to help prevent and combat activities such as tax fraud, terrorist financing, money laundering and corruption. The other purpose is to help create transparency around corporate ownership.

Why Is Transparency Important in Corporate Governance?

Transparency is important in many areas of life, but it can be particularly important in corporate governance. Consider the following ways transparency can improve a business:

  • Attracting premium talent: Businesses that are transparent about who runs them and how they are run may have a marketplace advantage in attracting the best employees. With workers becoming more mobile than ever, and more willing to leave a work environment they feel is negative or toxic, being able to show that a business is ethical and has happy staff members can draw in top talent and retain them.
  • Generating better work performance: When employees have more information about how the business is run and what the corporate goals are, they may be more willing to work hard. People often take more pride in their work when they know their employer is ethical and appreciative, and they may be more willing to assist in course correcting when they do have criticism of their employer.
  • Improving efficiency: When business owners, management, employees, vendors, and even customers all have access to more information, everyone involved with the business has the chance to become more efficient. Efficiency saves time and money, allowing the business to get more done more quickly and with a higher profit margin––improving not just the company’s bottom line, but its ability to reward high-performing employees, as well.
  • Building trust with both employees and customers: More consumers are taking steps to give their money to businesses they believe are ethical—and many consider being ethical and being transparent to be close conceptual cousins. Employees are happier when they believe their employer is being transparent about how decisions are made, budgets are set and spending is distributed, and other information about the company. By being transparent, a company can build trust with both their customers and their employees without any additional effort.
  • Strengthening business accountability: When decisions are made and steps taken behind closed doors, it can be tempting to cut corners and do things that may not be in the best interest of the company. Transparency brings those decisions and steps being taken into the light, where others can see them. Transparency increases leadership accountability by ensuring that those in charge consider not just how to accomplish something, but how the path to that accomplishment looks to others.

What Are the Reporting Requirements?

The reporting requirements differ slightly based on whether the business entity was created or registered before vs. after the first day of January, 2024. If the company was created or registered prior to the start of the year, they are required to provide information about the company itself and its beneficial owners. Companies created on or after January 1 must report the same information, plus information regarding company applicants. Harrison Law, PLLC may be able to assist you in determining your business’s reporting requirements if you are not sure what to report or have more than one business to report.

Required Company Information

Some of the information businesses must report is substantially similar in form as well as function to what is considered “directory” information for individuals. Companies are required to report the following:

  • Company’s legal name
  • Any trade or “doing business as” names
  • Current United States street address of principal location
  • Jurisdiction where business formed or registered
  • Taxpayer identification number

Required Beneficial Owner and Company Applicant Information

While all businesses are required to report beneficial ownership information, only those created after January 1, 2024, must report company applicant information. The information required for both is the same:

  • Beneficial owner or company applicant’s name
  • Date of birth
  • Residential address
  • Passport, driver’s license, or other acceptable form of identification number

What Is Beneficial Ownership?

The use of the term “beneficial ownership” has confused many business owners about whose information needs to be reported. From family or friends who may have invested money but have nothing more to do with the business to full-time partners with whom they share decision-making power, many business owners are confused as to what a beneficial owner is, whether they themselves qualify as “beneficial,” and to whom. FinCEN defines a beneficial owner as an individual who either directly or indirectly holds significant influence over the operations of the reporting company, or who possesses ownership or control of a minimum of 25% of the company’s ownership stakes.

Who Is Exempt From the Corporate Transparency Act?

While the Corporate Transparency Act applies to many businesses, there are 23 types of entities that are exempt from BOI reporting requirements. These entity types include many nonprofits, certain large operating companies, and publicly traded companies that meet specific requirements.

FinCEN identifies the following among the different types of entities that are exempt:

  • Banks
  • Accounting firms
  • Credit unions
  • Insurance companies
  • Public utilities
  • Inactive entities

Additionally, subsidiaries of some exempt entities are also exempt from reporting.

Do You Have Other Questions Regarding the Corporate Transparency Act?

The Corporate Transparency Act is a law that was passed in 2021 but did not go into effect until January 2024. In the interim between passage and effect, many business owners may have forgotten what the effective date would be, as well as what the requirements are to comply with the new law. The consequences of such forgetfulness or confusion can be severe, as failure to comply may result in civil penalties of $500 per day until the business is brought into compliance, or criminal penalties––including possible jail time or fines of up to $10,000. For these reasons, business owners who have questions about Corporate Transparency Act requirements will not want to delay ensuring their companies report the required information. If you need assistance in filling out the appropriate forms, or have other questions regarding the new law, an experienced Arizona business attorney with Harrison Law, PLLC may be able to assist you. Call (480) 320-2310 to discuss your reporting options.

© 2024 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.