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Today we're diving deep into the Corporate Transparency Act, a crucial piece of legislation that's about to change the landscape for business owners across the United States. This act mandates that those who own, control, or form most corporations and LLCs must report identifying information to FinCEN. This stands for the Financial Crimes Enforcement Network. My name is Attorney Ted Gudorf and I'm a board certified specialist.
in estate planning trust and probate law and the owner of Gudorf Law Group LLC. Let's start by understanding what this act really means. In essence, it requires the filing of a report about the beneficial owners of every company in the United States to FinCEN, with certain exceptions. FinCEN is a Bureau of the U .S. Treasury. This is a major development that affects countless businesses and individuals across the country. First and foremost, it's crucial to understand
why this is such a big deal. This act affects every owner of a U .S. company, with some exceptions, as you'll soon see. It also impacts everyone who sets up a U .S. company on behalf of others, including attorneys. The implications of noncompliance are severe, with penalties of up to three years in prison and a $10 ,000 fine for intentionally not complying. Moreover, under Title 18, there are additional penalties
from $250 ,000 to $500 ,000 for providing false information. We're also delve into the new requirements regarding when you need to start reporting. This is vital information that every business owner and practitioner needs to be aware of to ensure compliance.
and to avoid these potential fines and penalties and other legal issues. Given the significance of this topic, I highly recommend that you watch this video in its entirety. It's designed to be comprehensive yet digestible, providing you with all the information you need to navigate these new requirements successfully. As a bonus, I want you to know that our firm is here to help. We offer a service to assist in the filing this report. We pride ourselves on keeping our fees reasonable.
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So if you find yourself overwhelmed by these new requirements, remember that professional help is just a phone call away. Well, let's start by outlining the main updates brought about by the Corporate Transparency Act. These changes are significant and will affect both existing and new companies. For companies started before January 1, 2024, there's a transition period. These companies have from January 1, 2024 until January 1, 2025.
to file the required report with Incend. This gives established businesses one full year to gather the necessary information and comply with the new requirements. For new companies started after January 1, 2024, the timeline is more immediate. These companies must file the report within 30 days of company formation.
This shorter timeline means that new business owners need to be prepared to provide this information right from the start. It's also important to note that accuracy is crucial in these filings. If any of the information on the report was inaccurate when it was filed, the reporting company has an obligation to file a corrected report. This must be done within 30 calendar days after becoming aware of the inaccuracy.
This requirement underscores the importance of maintaining up -to -date and accurate records of your company's ownership and control structure. Another key point to understand is how the Act deals with company ownership structures. If one company owns another company, you need to report back to the human being that owns the company that owns the other one. In other words, the reporting always needs to trace back to at least one natural person.
This provision is designed to prevent the use of complex corporate structures to obscure true ownership. Now that we've covered these crucial updates, let's get down to the practical implications. As a business owner or practitioner, what exactly do you need to do to comply with the Corporate Transparency Act? Well, the core requirement is this. When setting up a company, you must report the beneficial owners to FinCEN.
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But what exactly does the Act mean by beneficial owner? Let's break it down. The Corporate Transparency Act defines a beneficial owner as someone who meets one or more of the following criteria. One, someone who exercises substantial control over a corporation or LLC formed in a U .S. state or Indian territory. Two, someone who owns 25 % or more of the company. Three, someone who receives substantial economic benefits
from the company's assets. It's important to note that these criteria are not mutually exclusive. A person could be considered a beneficial owner if they meet any one of these three conditions or any combination of them. Now let's talk about what information you need to provide when you form a company or are identified as a beneficial owner. The Act requires you to report the following defense set. For the reporting company, one, the full legal name of the reporting company.
2. Any trade name or doing business as names 3. The business street address of the reporting company 4. The jurisdiction where the company was formed and 5. The company's IRS tax identification number Now for each beneficial owner, what is the information? 1. Their full legal name 2. Their date of birth 3. A current residential or business street address 4.
an image of a government issued identification document, such as a passport or driver's license. It's worth noting that this last requirement, providing an image of an ID, is a recent update to the rules. Previously, you only needed to provide an identification number from the document, but now an actual image is required. Importantly,
The Act does not require you to provide any financial information or details about the business purpose or operations. The focus is solely on identifying the individuals behind the company. Now, let's consider the case of applicants. These are individuals such as lawyers who set up companies on behalf of others. If you're an applicant and not a beneficial owner of the entity, you still have reporting obligations. You need to report
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all of the beneficial owners as described above, and you also need to provide the same information about yourself as the applicant. To streamline this process, FinCEN is introducing a numbering system. You can apply for a FinCEN number, which anyone who asks for it can receive. This number can be used to shortcut the reporting process and future filings. Now that we've covered the requirements,
I'd like to share my perspective on this new law. As someone who has been in this business for over three decades, I have some thoughts on its implications and effectiveness. First and foremost, I want to emphasize that despite this new law, there are still incredible tax and lawsuit protection benefits to operating your business, either as a corporation or an LLC. So while this law adds a layer of complexity,
It doesn't negate the advantages of these business structures. Operating without a company structure is still not a good option for most businesses. While well intentioned, this law imposes, in my opinion, unnecessary paperwork on the majority of honest business owners. With 2 million companies formed annually in the United States, only about 2 ,000 may involve bad actors, just 0 .1 % of 1%. Why should all of the businesses
bear the burden for this small percentage. Additionally, bad actors can still evade detection by lying or setting up side contracts. Since company ownership is already reported in tax filings, this new requirement seems more like a bureaucratic redundancy than an effective safeguard. Furthermore, there ways around this requirement that are both legal and obvious. For instance, this law only applies to U .S. companies.
It doesn't apply to offshore ones unless they do business in the United States. As someone whose business includes setting up or helping set up offshore companies, I can tell you that this creates a clear alternative for those seeking to maintain privacy. There are also certain types of trusts that we set up which can help maintain privacy of ownership. For example, a land trust might own a piece of real estate. This can provide some additional privacy. So if you're a good, honest business person,
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who simply wants extra privacy, these are options worth considering. We're always happy to provide more information on these legal structures if you give us a call. Despite any reservations about this law, it is the law and compliance is mandatory. We have no legal choice but to comply. It's a bit like going through security at the airport. We might not like it, but it's a necessary step if we want to reach our destination. Now, I know some of you
might be concerned about privacy. Is this new reporting requirement an invasion of privacy? Well, let's look at the facts. According to the law, someone can only access your beneficial ownership information that's been reported to FinCEN in three specific ways. One, a request by a local, tribal, state, or federal law enforcement agency. Two, a request made by a federal agency
on behalf of a law enforcement agency of another country. And they must prove to FinCEN that they have a legitimate right to this information, of course. Three, a request made by a financial institution, but only with your consent as the customer. So, unless you're engaged in illegal activities, you really don't have much to worry about. Even your bank can't access this information without your explicit consent.
It's also worth noting that there may be an annual filing requirement similar to how you file taxes every year. You'll need to ensure that the information on file with FinCEN is up to date and accurate each and every year. Next, let's discuss the penalties for noncompliance. There are severe consequences for three types of actions. One, providing false information or fake ID documents to FinCEN or two,
willfully failing to provide complete or updated beneficial ownership information or 3. Receiving a subpoena and knowingly disclosing its existence or other requests for beneficial ownership information unless doing so is necessary to fulfill the request or the enforcement agency authorizes the disclosure. Now if you do any of these things you can be subject to a civil penalty of up to $10 ,000 and under Title 18
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the penalties can go up to $250 ,000 for individuals and $500 ,000 for organizations, plus up to three years in prison. However, it's important to note that if you're simply negligent, that is, you didn't know you had to do these things, you're not going to get into trouble. The secretary of the treasury does have the authority to waive penalties if the failure to comply was due to reasonable cause.
and not willful neglect. So while FinCEN will know who the owners are, that information is heavily protected. The big ugly guy wants to sue you may not be able to find out who owns the company he's trying to go after. It's also worth noting who is not considered a beneficial owner under this law. This includes minor children or nominees and similar agents, unless of course they're the actual beneficial owner. Mere employees of the company
individuals who inherited an interest in the company, creditors of the company, unless they meet the criteria of a beneficial owner, and of course, trusts. Offshore corporations or LLCs are not subject to this law unless they do business in the United States. Certain types of companies, like publicly traded companies, financial institutions, and exempt non -profit organizations are also exempt.
from full reporting. Larger companies with more than 20 full -time US employees, over $5 million in gross receipts, and a US office are exempt as well. Even if your company is exempt, you still need to file a report with FINCEN stating the exemption and providing basic information.
such as name, address, birthdate, and identification. Let's take a moment to consider what this new law means for you as a business owner or practitioner. What are the key takeaways? I want to emphasize again just how significant these changes are. This is not a minor regulatory adjustment. It's a fundamental shift in how ownership information is reported and managed in the United States. Whether you're a small business owner, a large corporation, or a legal professional who assists company
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informing, then these changes will affect you. But remember, knowledge is power. By understanding these new requirements, you're already taking the first step towards ensuring your compliance and protecting your interests. Stay informed, seek professional help when needed, and approach these changes proactively. And if you haven't already done so, I strongly encourage you to subscribe to our channel. We regularly release videos on important
business and legal topics, and by subscribing, you'll ensure that you never miss out on vital information that could impact your business. Remember, in the world of business and law, staying informed is not just beneficial, it's essential. The Corporate Transparency Act is just one example of how quickly the regulatory landscape can change. By staying connected with our channel, you'll be better equipped to navigate these changes.
and protect your business interests.