As a business owner, you must comply with various laws and regulations at the federal, state, and local levels. A lack of knowledge of legal requirements, such as those under the Corporate Transparency Act, does not excuse you from compliance, and the penalties for non-compliance may sometimes be severe. Therefore, having an Arizona commercial litigation attorney at Provident Law® to keep you updated on changes in the law is critical.
We have years of experience advising businesses on day-to-day legal matters, including corporations, partnerships, LLCs, and other business entities. As part of that routine advice, we keep abreast of changes in the law and ensure that our business clients are aware of and comply with the changes that affect them. Together, we can keep your business in good standing and compliant with all legal requirements.
The Corporate Transparency Act
The Corporate Transparency Act (CTA) is a federal law that took effect on January 1, 2021. The purpose of the law is to help prevent and combat money laundering, terrorist financing, fraud, corruption, and other illegal activity using the country’s financial system.
A lack of uniform beneficial ownership reporting requirements in the U.S. has made it difficult for investigating authorities to discover the true owners of shell and front companies. These corporations historically have allowed individuals to hide their identities as they move money through the U.S. financial system. New reporting requirements will make it easier for law enforcement authorities to identify and investigate corporations being used for illegal activities.
Reporting Requirements
To accomplish its purpose, the Corporate Transparency Act will require most new and existing American corporations to file annual reports with the federal government concerning their beneficial owners. Corporations will file these reports with the Department of Treasury’s Financial Crimes Enforcement Network, or FinCEN.
All domestic and foreign “reporting” companies are subject to this new reporting requirement. Domestic reporting companies include corporations, limited liability companies, and other business entities created by filing documents with the secretary of state’s office or a similar office. Foreign reporting companies include entities formed under the laws of foreign countries and registered to do business in any U.S. state by filing documents with the secretary of state’s office or a similar office. Some companies are exempt from the definition of reporting companies, such as regulated financial services companies and tax-exempt entities.
The new reporting requirements go into effect on January 1, 2024. The due date for the first report depends on the date the company was created. Companies created before January 1, 2024, have until January 1, 2025, to file their initial reports. Companies created on or after January 1, 2024, have 30 days from the date of their creation to file their initial reports.
The reports must contain detailed contact information for the reporting company, the reporting company’s beneficial owners, and the “company applicants” who filed to create the entities. Both individuals and companies can obtain FinCEN identifiers to include to avoid repeating the same information in subsequent filings.
After filing their initial reports, companies must submit updated reports within 30 days of any changes to the information contained within the initial reports. Likewise, if companies become aware of mistakes or inaccuracies in their reports, they must file corrected reports within 30 days of discovering the errors.
Understanding Beneficial Ownership
A beneficial owner under the Corporate Transparency Act is anyone who directly or indirectly exercises “substantial control” over a company or controls at least 25% of the ownership interests. “Substantial control” is defined as any of the following:
- Service as a senior officer of the company;
- Authority over the appointment or removal of any senior officer or a majority of the board; or
- The ability to direct, determine, or substantially influence important decisions the reporting company makes.
Defining Company Applicants
Under the Corporate Transparency Act, a company applicant is any individual who directly files the documents to create the reporting company. If more than one individual is responsible for filing the documents, it includes those primarily responsible for directing or controlling the filing. However, companies created before January 1, 2024, do not need to include information on company applicants.
In many cases, company applicants are the same as beneficial owners. However, they also may be third parties such as paralegals or attorneys if they directly file the corporate formation documents on behalf of their clients.
Contact Us for Assistance with Your Commercial Law Issue Today
The commercial litigation attorneys at Provident Law® have over 200 years of combined legal experience representing clients in daily legal issues your business confronts. Our routine oversight ensures you comply with all pertinent laws and regulations to avoid costly legal errors. We are in the best position to help you efficiently and economically handle all commercial disputes. We aim to build a long-term relationship with you as we work together to proactively address and solve the most complex legal problems that your business may face. Contact a commercial litigation attorney today by calling (480) 388-3343 or reach out to us online to set up a time to see what we can do for you.