Corporate Transparency Act – Sole Proprietorships

The Federal Government passed the Corporate Transparency Act with bipartisan support in 2021. The reporting requirements under the Corporate Transparency Act (the “Act”) go into effect on January 1, 2024. There has been much commentary if a business operated as a sole proprietorship will have to comply with the Act’s reporting obligations. The short answer is NO. Now that you know the answer, I hope you keep reading to understand what a sole proprietorship is and why a sole proprietorship is exempt from having to comply with the reporting requirements.

In the case Patterson v. V&M Auto Body, the Ohio Supreme Court held that “a sole proprietorship has no legal identity separate from that of the individual who owns it.” A sole proprietorship doing business under a trade name or a fictitious name does not result in the creation of an entity separate and distinct from the person operating the business. In creating a sole proprietorship in Ohio, it is not necessary to file any paperwork with the Ohio Secretary of State.

So, what does it take to create this separate corporate legal identity? In Ohio, a person is able to create a separate corporate legal identity upon filing with the Ohio Secretary of State the articles of organization when organizing a limited liability company or the articles of incorporation when incorporating a corporation. A limited liability company and a corporation are considered to be legal entities separate and distinct from the person operating the business.

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Why does a sole proprietorship not have to comply with the reporting requirements of the Act? Only companies that meet the definition of a “reporting company” are required to submit the required report. A “reporting company” is defined as an entity “that is created by the filing of a document with a secretary of state…” 31 USC §5336(a)(11). Since a sole proprietorship is formed without having to file a document with the secretary of state, a sole proprietorship does NOT fall within the definition of a “reporting company.” This interpretation was further bolstered by an FAQ issued by FinCen on December 12, 2023. In this FAQ, FinCen indicated that a sole proprietorship will only have to comply with the reporting requirements if the sole proprietorship was formed by filing a document with a secretary of state. A sole proprietorship’s submission of a trade name or fictitious name filing with a secretary of state by itself does not convert a sole proprietorship into a “reporting company.” In Ohio, it is not necessary to submit any filings with the Ohio Secretary of State when operating as a sole proprietorship.

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Chris Corpus

Founding Partner at Corpus Law Inc

This article does not provide legal advice or create an attorney-client relationship. If you have any questions or would like to learn more about this topic or if you have other legal questions, do not hesitate to contact Chris Corpus, Esq. of Corpus Law Inc at 216-973-2475. Copyright Christopher A. Corpus 2024.