The Corporate Transparency Act: What Every Law Firm Owner Must Do Before December 31st (Ep. 90)

What You Need to Know About the Corporate Transparency Act: A Guide for Law Firm Owners

Ignoring a simple filing could cost your law firm thousands in fines and potentially damage your reputation. The Corporate Transparency Act (CTA) is a game-changer. Whether you’re a solo practitioner or a small law firm owner, this episode of “The Lawyer Millionaire” is your essential guide to understanding and complying with the CTA before the December 31st, 2024, deadline.

What is the Corporate Transparency Act (CTA)?

The Corporate Transparency Act is a federal law requiring businesses, including law firms, to report beneficial ownership information to the Financial Crimes Enforcement Network (Fincen). This law aims to combat financial crimes such as money laundering, terrorist financing, and tax evasion. Law firms structured as LLCs, partnerships, or sole proprietorships must disclose details about their owners to ensure transparency.

Key Details to Report:

Full Name of each beneficial owner
Date of Birth for each owner
Current Residential and Business Address
Government-Issued ID with full number and photos of the front and back (e.g., Driver’s License or Passport)

Failing to comply can result in fines up to $500 per day, with a maximum of $10,000, and even criminal charges if negligence is proven.

Who Needs to Report?

The CTA primarily targets small businesses, including most law firms. Exceptions include:

Firms with over 20 employees
Companies with over $5 million in annual revenue
Publicly traded companies
Certain regulated entities

If your firm doesn’t meet these exemptions, you’re likely required to report.

Key Steps for Compliance

Determine Your Reporting Requirements:
- Check if your law firm qualifies as a reporting company under the CTA.
- Consult a compliance expert or legal advisor for clarity.
Gather Necessary Documents:
- Collect names, addresses, dates of birth, and government IDs for all beneficial owners.
Submit Your Report:
- Visit the official FinCEN porta l to submit your report before December 31st, 2024.
- For entities formed after January 1st, 2024, reports must be filed within 30 days of formation.
Establish an Update System:
- Implement a system for tracking ownership changes and ensure prompt updates are filed with FinCEN.

Why This Matters: Streamline and Secure Your Firm

Compliance isn’t just about avoiding penalties. It’s an opportunity to streamline your firm’s governance and enhance operational integrity. Adopting these practices can safeguard your firm and position it for long-term success.

Pro Tip: Delegation

Consider assigning this task to a compliance officer or using specialized software to manage filings efficiently. Delegating these responsibilities ensures your compliance without overburdening your schedule.

Conclusion: Protect Your Firm and Thrive

Compliance might seem daunting, but it’s a crucial step toward securing your law firm’s future. Take action now, stay ahead of the deadline, and use this as a chance to streamline your operations. Remember, a well-managed, compliant firm is better positioned for growth and success.

Resources:

Transcript:

Darren Wurz [00:00:00]:
What if I told you that ignoring one simple filing could cost your business thousands of dollars in fines and even put your reputation at risk? The Corporate Transparency act is here. Welcome to the Lawyer Millionaire, where we deliver financial planning and business strategy insights for ambitious law firm owners so you can enjoy more time, more abundance, and less stress, even if you’re still growing your law practice. Have you heard about the Corporate Transparency Act? If your firm is like most, you’re required to file new disclosures by the end of 2024 or face steep penalties. Today, we’re breaking it all down and showing you how to stay ahead of this looming deadline.

Intro [00:00:49]:
We are on a mission to help lawyers and law firm owners maximize wealth and achieve financial independence. Welcome to the Lawyer Millionaire with Darren Wirtz from Wirtz Financial Services.

Darren Wurz [00:01:03]:
The Corporate Transparency act, or cta, is a landmark federal law that requires businesses, including small law firms, to report beneficial ownership information to the Financial Crimes Enforcement Network, better known as Fincen. The purpose is simple but powerful to combat financial crimes like money laundering, terrorist financing, and tax evasion by increasing transparency around who exactly owns and controls the businesses operating in the United States. For law firm owners, this means you will need to disclose details about the individuals who own or control your firm, ensuring transparency in your business operations. While this may sound straightforward, the specifics can be a little bit tricky, especially if you’ve never done this before and this is new, so you probably haven’t. And in fact, I only recently learned about this. Well, not too recently, but earlier this year, I think this was in January, February of this year, 2024. I was speaking with a business law attorney and he was making me aware of this, of the Corporate Transparency act. And I was like, well, why has.

Darren Wurz [00:02:22]:
Why is this the first time I’m hearing about this? Maybe I should have been paying more attention to the news. But I did learn about it and you know, thankfully so, because we actually just did our filings to make sure that we are compliant and before the deadline. And the deadline, of course, is December 31st of this year. So, yeah, you got some stuff to do. If you haven’t addressed this yet now, you might be thinking to yourself, does this really apply to me? I’m just a solo practitioner running my law practice and not bothering anybody. But here’s the catch. Yes, you are. Most law firms, especially those that are structured as LLCs, partnerships or sole proprietorships, fall under the CTA’s reporting requirements.

Darren Wurz [00:03:13]:
Ignoring these rules is not an option, unfortunately. And non compliance can result in significant penalties up to $500 a day in fines with a maximum of $10,000. And if they can prove that you have been willfully negligent in not complying, you might even face criminal charges. That could include prison time. Okay, so no one wants to go to prison and no one wants to pay $10,000. So let’s break it down so you know exactly what you need to do in order to avoid that. Okay, who exactly must report? The CTA applies to most small businesses, including law firms, that are structured as LLCs, partnerships or sole proprietorships. There are some exceptions.

Darren Wurz [00:04:02]:
Larger firms, larger Companies with over 20 employees and over $5 million in annual revenue, publicly traded companies and certain regulated entities. I don’t know which ones those are. But anyway, the moral of the story is more than likely you will fall under the category of businesses that need to report. So what exactly do you need to report? Well, beneficial ownership information for each owner must be reported and that includes the full name of each owner, date of birth for each owner, current residential and business address, and your government issued id. You need the number and you also need a picture front of the, I think the front and the back of your driver’s license or passport. Okay? So make sure you have all of that information handy and ready to go before you go and start to file because otherwise you’re going to get the process started and have to start all over again. Now there is a deadline to file, as we mentioned. For existing businesses the deadline is December 31, 2024.

Darren Wurz [00:05:16]:
So if you haven’t done this yet, make sure you get it done before the end of the year. And for entities formed after January 1st of this year, you must file within 30 days of formation. So if you just started your business this year, hopefully you have already done this. If not, get on it pronto. And for anybody who’s starting a business going forward, you’re going to need to make sure you do this. So another thing to add to our checklist of to dos. When we start a business, you know, your, your llc, you register with the state, you get your articles of, you know, incorporation or your articles of organization, you know all of the state registration process that you normally go through. Here’s one additional item we need to add anytime we think about businesses that are getting started from now on.

Darren Wurz [00:06:09]:
Now where do you, where do you put all this information? Great question. There is actually a website reports are submitted to FinCEN via a secure online portal. And by the way, we are going to put, we’re going to put it in the show notes so you can find it. I’ll just mention it here. It’s fincen.gov boi yep. And I’m going to put that in the show notes for everybody so that you have that There are some fake websites out there that are trying to steal your information that will pretend to be the FinCEN website. So beware of those. Those are not the sites that you want to use.

Darren Wurz [00:06:54]:
You want to use the official website of the federal government. Now, let’s address some deeper questions. Right. What happens if beneficial ownership is disputed? Ownership is simple, right? If you’re the owner, it’s you. But what if you are a law firm with multiple partners? What if there’s disagreements about who qualifies as a beneficial owner? To resolve this, it’s important that you have your operating agreement. Clearly define who is an owner and who’s not and what qualifies you for ownership. If you haven’t updated your operating agreement in a long time, maybe your operating agreement is 20 years old, it’s time to get that updated. You might want to consult a business attorney or compliance attorney to help you with that.

Darren Wurz [00:07:43]:
How does this affect privacy and confidentiality? You know, that’s a big concern in today’s cyber security world. Many law firm owners could be worrying about the sensitive information that they’re putting in there. You know, it’s your. It’s your personal identifiable information. While the CTA does require transparency, there are supposed to be. There are strict protocols to safeguard the confidentiality of your information. The data is not made public. It’s only accessible to authorized agencies under specific circumstances.

Darren Wurz [00:08:18]:
But I get that that’s a concern, obviously. What if you feel that you’re exempt? Well, you still. You want to make sure that you’re absolutely sure that you’re exempt, because otherwise you’re going to be in trouble. Even if your firm meets the exemption criteria, it’s a good idea to maintain clear records and verify your status periodically and make sure that you are checking in on that. All right, so what are some things that you should do right now? Right, let’s simplify this for you and create an outline of actionable steps. Number one, determine your reporting requirements. Check if your firm qualifies as a reporting company under the cta. Consult a compliance expert or legal advisor if you need to.

Darren Wurz [00:09:06]:
For clarity, gather your documents. Number two, collect beneficial ownership information. Names, addresses, dates of birth, and government IDs for all owners and controllers of your firm. Number three, file your report. Visit FinCEN’s portal and submit your report by December 31st of 2024. If your firm is newly formed, be sure to file within 30 days of formation. Number four, establish an update system. Set up a system to track ownership changes and ensure that updates are filed promptly with FinCEN.

Darren Wurz [00:09:38]:
Right. This could be assigning a person on your team, maybe a compliance officer, or using special software to help you manage this as a task. All right, so great. This ties right, into a lot of things we’ve been talking about, about systems and processes. So here could be one thing that you have a system for, to check for on a regular basis. And this should be part of a, maybe a broader checklist, right. Of looking for, you know, there’s things you gotta file with the state each year. Right.

Darren Wurz [00:10:16]:
This should be part of those things. Right. Things that you make sure that you’re in compliance with as far as owning and operating your business and have somebody else do this. It’s not a very complicated task. We’ve talked before about delegation. Maybe you can have a member of your team responsible for going in and submitting the information and making sure that that’s put in there. So, you know, this should not be just, you know, I can hear the collective groan, right? Another thing on my to do list. And trust me, for us, for me, I did it myself, I admit, but it was one of those things in my to do list that sat there for months and months and months.

Darren Wurz [00:10:59]:
And then I finally got around to it. Right. Every day, right there at the top of the list, something I need to do, do it later. Right. Well, the deadline is here, right? It’s like that. It’s like the real I.D. that’s coming, right. It’s like we know we need to get our real ID by May 2025.

Darren Wurz [00:11:19]:
Holy crap, May 2025 is right around the corner. So it’s not terribly difficult. But do make sure that you get it done. So, you know, we could turn this into a broader discussion on, you know, making sure that everything is being taken care of through having proper systems and delegation. You know, this is an opportunity not just to think about, oh, another compliance requirement. It’s an opportunity to think about streamlining things, streamlining your firm’s governance, avoiding unnecessary risks and make sure you get this done as soon as possible, at least before the deadline. You’re not just protecting your firm, you’re positioning it for a long term success. And here at the Lawyer Millionaire Founders Network, this is part of what we do.

Darren Wurz [00:12:09]:
I mean, we not, we’re not going to go and file this for you. But business planning is a core component of what we do here. And because we realize that running and growing your business is number one for you, we’re all about helping you set up your firm for sustainable growth and financial success. When you’re proactive in managing details like this, by having streamlined workflows and by delegating appropriately, you free up time and energy, mental energy. I mean that’s bigger than time to focus on growing your practice, maximizing your profits and achieving your long term vision. If you need guidance, we’re here to help. Connect with me on LinkedIn for more information like this. We’re always giving putting out great information and if you want to chat more, message me.

Darren Wurz [00:13:00]:
Let’s talk about how we can help your firm stay on track and build the life that you’ve always envisioned. Well, this has been the Lawyer Millionaire podcast, talking about something that’s perhaps not terribly exciting, but something that’s absolutely critical to get done before the end of the year. I’m your host, Darren Wurtz. Thank you for joining me on this journey to expand your business, maximize your profits and secure your financial future. I can’t wait to connect with you again next time. Until then, take care and keep pushing forward.

Outro [00:13:39]:
Thank you for listening to the Lawyer Millionaire. Click the Follow button below to be notified when new episodes become available. This content has been made available for informational and educational purposes only. This content is not intended to represent investing or tax advice. Always seek the advice of a qualified investment or tax advisor with any questions you may have regarding your own financial circumstances.