The Corporate Transparency Act – Legislative Alert

Congress reports that there are approximately two million corporations and limited liability companies formed nationwide each year. The Ohio Secretary of State reports that in 2021 approximately 197,000 new companies were created in the State of Ohio. When a company is created, many states, including the State of Ohio, do not require the disclosure of the identity of the “beneficial owners” of the company (to be defined below). While the vast majority of companies are created for legitimate purposes, the Federal Government, along with other countries, is finding it increasingly common for companies to be created in order to launder money, finance terrorism, commit tax and financial fraud, and the taking of actions harmful to the security of the United States. As such, the Corporate Transparency Act has directed the Financial Crimes Enforcement Network (FinCen) to collect certain information regarding most small corporations and limited liability companies. There are 24 exceptions or categories of companies that are exempt from having to file reports with FinCen. But, rest assured, a for-profit company, with less than twenty full-time employees, and less than $5,000,000 in gross receipts or sales, will most likely be required to file a report with FinCen. If a company is inactive, as defined by the regulations, then the inactive company is exempt from filing a report.

Companies that are required to file a report with FinCen are to report two pieces of information. The first is that all companies are to disclose what is referred to as “beneficial owners.” There are two categories of beneficial owners that are required to be disclosed: (a) all equity owners who own or control twenty-five percent or more of the outstanding equity and (b) all people who “exercise substantial control over the entity.” The second category is that the name of the person (or “applicant”) who signs the paperwork creating the company (in Ohio this would be the person who signs the articles of incorporation or the articles of organization) also needs to be disclosed.

So, what information is required to be filed about the beneficial owner and the applicant? The information to be reported is as follows:

(i) full legal name,

(ii) date of birth,

(iii) current residential or business address,

(iv) a driver’s license or passport number, and

(v) a copy of the driver’s license or passport.

Failure to timely file and/or update information is subject to serious penalties. The reporting obligations under the Corporate Transparency Act are not to be taken lightly. It is expected that FinCen will create a portal to allow the required information to be securely uploaded. The regulations do contain safeguards to protect and limit disclosure of the information that is reported.

Please note that this article is meant to be a general discussion and overview of the Corporate Transparency Act. Please look for additional articles to be published on this topic which will get into greater detail as to the various provisions of the Corporate Transparency Act. If you have any questions regarding the Corporate Transparency Act or if you will need assistance in complying with the filing requirements, do not hesitate to be in contact.

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Chris Corpus

Founding Partner at Corpus Law Inc