The purpose of this post is to remind small business owners that "the Rule" goes into effect next year. If you plan on forming a new business within the next twelve months, consider forming it prior to January 1, 2024.
What is the Rule?
"The Rule" of the Corporate Transparency Act mandates reporting requirements on vast swathes of businesses in the US. In addition to the numerous finer points of the Rule, millions of American small businesses will have to report and disclose certain information regarding beneficial owners to the Financial Crimes Enforcement Network ("FinCEN"), a bureau within the US Treasury Department. As mentioned in a previous post, this will apply to most active business entities in addition to all new business entities. The Rule is currently scheduled to go into effect on January 1, 2024.
Who has to report, and when?
All "Reporting Companies" (some 32.6 million businesses currently in existence, plus all new ones on or after January 1, 2024) will have to report.
Entities formed on or after January 1, 2024 will have to provide an initial disclosure within 30 days of formation. (EDIT: FinCEN recently proposed amending this 30-day period to 90 days from the date of formation)
Entities formed prior to January 1, 2024 will have to file those initial disclosures prior to January 1, 2025. This means that your business will have more time to report if you form your entity prior to January 1, 2024.
In addition, those who actually form the entities on or after January 1, 2024 ("applicants," oftentimes an attorney or other professional) will have to provide similar disclosures.
When will we know for sure?
Although FinCEN will likely have finalized forms completed far in advance of January 1, 2024 (you can see the proposed form, at the Appendix, here), few small businesses and their attorneys will have much experience with those disclosure forms, filing procedures, etc. Many details remain subject to change. Right now, FinCEN estimates that filling out the forms will take anywhere from 90 minutes to 650 minutes depending on the complexity of ownership and number of beneficial owners.
Conclusion
If you are preparing to form a new entity, and if you can control the date of formation, consider forming them now, in 2023, to give yourself a little more time to become familiar with the new forms, the new procedures, and identifying the information that your entity will need to provide.
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