The business world is constantly evolving, and keeping up with new regulations can be a challenge. The Corporate Transparency Act (CTA), introduced in 2021, is a recent change that impacts many businesses in the United States. This Act aims to increase transparency by requiring companies to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).
This article will serve as a comprehensive guide for your business to understand the CTA, its implications, and how to comply with its regulations.
What is the Corporate Transparency Act (CTA) and Why Does It Matter?
The CTA was enacted to combat financial crimes such as money laundering, tax evasion, and terrorism financing. By requiring businesses to disclose their beneficial owners, authorities gain valuable insight into company ownership structures, making it harder for criminals to hide their activities. This increased transparency strengthens the U.S. financial system and protects legitimate businesses.
What You Need to Know About FinCEN
FinCEN acts as the guardian of the U.S. financial system. Established in 1990, they work with law enforcement, intelligence agencies, and financial institutions to analyze financial data and prevent criminal activity.
Who Needs to Report Beneficial Ownership Information (BOI)?
The CTA applies to two main categories of businesses:
- Domestic reporting companies: This includes corporations, LLCs, and similar entities formed within the U.S., regardless of size or structure (including single-member LLCs).
- Foreign reporting companies: These are entities formed outside the U.S. that have registered to do business here.
There are exemptions for certain entities, such as publicly traded companies, banks, credit unions, and some investment firms. A detailed list of exemptions can be found on the FinCEN website.
Who is a Beneficial Owner?
According to the CTA, a beneficial owner is an individual who either:
- Owns or controls at least 25% of the company’s ownership interests.
- Exercises “substantial control” over the company, as defined by FinCEN. This can involve decision-making authority, voting rights, or the power to direct or control the company’s operations.
Important Note: Publicly traded companies typically don’t have beneficial owners because ownership is widely distributed among many shareholders.
What Information Needs to be Reported?
Companies must report the following information about each beneficial owner to FinCEN:
- Full legal name
- Date of birth
- Current residential or business address
- Unique identifying number from an acceptable ID (passport, driver’s license, etc.)
This information needs to be updated within 30 days of any changes in beneficial ownership.
What are the Filing Deadlines?
The deadlines for filing beneficial ownership reports (BOI reports) vary depending on when your business was formed:
- Existing businesses (formed before January 1, 2024): These companies have until January 1, 2025, to file their initial BOI report.
- New businesses formed on or after January 1, 2024:
- For companies formed between January 1, 2024, and December 31, 2024, the report is due 90 days from the earlier of the company’s creation date or the public notice of its creation.
- Companies formed on or after January 1, 2025, have a stricter deadline of 30 days to file their BOI report.
What Happens if I Don’t Comply?
Failure to comply with the CTA can result in significant penalties. These include:
- Civil penalties up to $591 per day for ongoing violations.
- Criminal penalties of up to $10,000 in fines and imprisonment for up to two years for willful failure to report or providing false information.
How to File a BOI Report
BOI reports must be submitted electronically through FinCEN’s secure online filing system. FinCEN also provides instructions and resources to help companies complete the filing process.
Additional Considerations
The CTA raises some privacy concerns regarding the reported information. While FinCEN is required to keep this information confidential, it can be disclosed in specific situations, such as law enforcement requests.
Companies should also be aware of the concept of “company applicants” as defined by the CTA. This refers to the individuals who played a primary role in filing the documents to create or register the business. The reporting requirements for company applicants apply only to companies formed on or after January 1, 2024.
Conclusion
The Corporate Transparency Act is a significant change for businesses in the U.S. By understanding the requirements and taking proactive steps to comply, your company can avoid penalties and contribute to a more transparent financial system. For expert guidance and support in navigating these regulatory waters, feel free to reach out to our office for a consultation.
