Until this year, federal law did not require most small businesses to report information about the ownership and control of their companies. A new law has changed all that. Consider the following…
The new law…
On January 1, the National Defense Authorization Act for 2021 was enacted into law. It included the Corporate Transparency Act (“Act”). The primary purpose of the Act is to enable and advance critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity.
The Act requires that corporations, limited liability companies and other similar entities formed or registered in the United States (collectively, “Reporting Companies”) report the name, address, date of birth, and driver’s license or passport number of each of their “beneficial owners” to the United States Department of the Treasury. Reporting Companies will also be required to update the information as changes occur. The Act defines a “beneficial owner” as an individual who, in any manner, exercises substantial control over the Reporting Company or owns or controls twenty-five percent or more of the ownership interests of the Reporting Company.
Virtually all privately-owned business entities will be subject to the Act’s reporting requirements, and there will be significant penalties for non-compliance. Anyone who intentionally fails to comply with the Act may be liable for fines of up to $500 per day of noncompliance and could face a prison term of up to two years.
The Act will become effective as soon as the Department of the Treasury establishes additional rules, which will likely be issued sometime this year. Entities formed or registered prior to the effective date will have two years to submit their initial reports. Entities formed or registered after the effective date will be required to submit their reports at the time of formation/registration.
Conclusion…
It would be prudent for those who control or own business entities to familiarize themselves with the Corporate Transparency Act, update their records concerning the ownership and governance of the business entities with which they are affiliated, and prepare to comply with the requirements of the new law. Please feel free to contact me if you have any questions regarding the Act.
PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.