Submitted by Matthew B. Edwards and D. Parker Baker III of Thomas, Fisher & Edwards, P.A., Greenville

Note: This article has been adapted from an article entitled “The Basic Ins and Outs of the Corporate Transparency Act” published in the September 2023 issue of the SC Lawyer Magazine. 

The Corporate Transparency Act of 2021 (“CTA”) notably increases corporate reporting requirements and will substantially affect CPAs and their clients. This article provides an overview for CPAs of the CTA’s key requirements and definitions. 

The CTA requires “Reporting Companies” to submit detailed information to the Financial Crimes Enforcement Network of the Treasury Department (“FinCEN”) about themselves, their “Beneficial Owners,” and “Company Applicants.” Each Reporting Company formed on or after January 1, 2024, and before January 1, 2025, must report the required information within ninety (90) days of its creation. (i) However, a Reporting Company formed before January 1, 2024, must file its first report by January 1, 2025. (ii) Any entity formed on or after January 1, 2025, must submit its first report within thirty (30) days of creation. (iii)   

Reporting Company  

A “Reporting Company” under the CTA is any corporation, limited liability company (LLC), limited partnership (LP), or “other similar entity” created by the filing of a document with the Secretary of State or similar office under the law of a state or Indian tribe. (iv) Entities formed without the filing of a document (e.g., general partnerships and sole proprietorships) are exempt from the definition. (v) There are twenty-three (23) exceptions, which fall into three general categories. (vi) First, entities with significant disclosure obligations, such as banks, insurance companies, and registered investment advisors, comprise most of the exceptions. (vii)  Second, there are exceptions for tax-exempt entities, such as charities, charitable trusts, and political organizations. (viii)  Finally, there is an exception for “Large Operating Companies,” which applies to entities with (i) a physical office in the U.S., (ii) at least twenty (20) full-time employees, and (iii) over Five Million Dollars ($5,000,000) in gross U.S. receipts based on the prior year’s income tax return. (ix)  

Beneficial Owner 

A “Beneficial Owner” is any individual who (i) owns at least twenty-five percent (25%) of a Reporting Company or (ii) exercises substantial control over a Reporting Company. (x) The ownership prong includes a wide range of financial instruments as well as direct or indirect ownership through intermediaries or trusts. (xi) An individual exercises substantial control over a Reporting Company if such individual has control over important decisions of the Reporting Company (e.g., any senior officer). (xii)   

Company Applicant 

A “Company Applicant” is the individual responsible for the entity’s creation, either by filing the relevant documents or directing such filings. xiii Any entity formed after January 1, 2024, must include information about this individual in its initial report. (xiv) 

Reporting Requirements 

A Reporting Company must provide the following information about the Reporting Company: (xv) 

  • Full legal name;  
  • Any trade or “doing business as” names;  
  • Complete, current street address of the principal place of business;  
  • Jurisdiction of formation; and  
  • Employer Identification Number. 

The report must provide the following information about each Beneficial Owner and Company Applicant: (xvi)   

  • Full legal name;  
  • Date of birth;  
  • Complete, current residential street address (or business address for a Company Applicant); and   
  • Unique identification number and image of a U.S. passport, a state or Indian tribe identification document, driver’s license, or a foreign passport.  

Obligation to File Updated Reports 

Reporting Companies must file updated reports within thirty (30) days of any changes to the information previously submitted to FinCEN about the Reporting Company or its Beneficial Owners. xvii However, updates regarding Company Applicants are not required after the initial report. (xviii) 

Penalties for Noncompliance 

Civil and criminal penalties potentially apply for a Reporting Company’s breach of the CTA’s reporting requirements. There are civil penalties of up to Five Hundred Dollars ($500) per day for reporting false or incomplete information to FinCEN.xix Additionally, violators may be subject to criminal penalties of up to (i) two (2) years in prison, or (ii) Ten Thousand Dollars ($10,000) in fines.xx  Senior officers may be liable for a Reporting Company’s failure to satisfy the CTA’s reporting requirements. (xxi) 

Conclusion 

Following the January 1, 2024, implementation date, CPAs must ready themselves and their clients for these new reporting requirements.  Understanding the CTA’s nuances will be crucial in ensuring compliance and navigating this regulatory landscape effectively.