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Are you ready for the Corporate Transparency Act?

The Corporate Transparency Act (CTA) has been making headlines in the business world as one of the most significant pieces of legislation in recent years. The CTA aims to increase transparency and combat financial crimes such as money laundering and terrorism financing. It requires certain corporations and limited liability companies (LLCs) to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).

While some hail the CTA as a necessary step towards a more transparent and accountable corporate landscape, it also raises concerns and questions from business owners about how to comply with the new requirements. Whether you are a small business owner or a corporate executive, it is crucial to understand the CTA and its impact on your organization. Let’s delve deeper into the CTA and its implications for businesses, as well as provide guidance on how to ensure compliance with the new regulations.

Understanding the Corporate Transparency Act: Overview and Key Changes

The Corporate Transparency Act aims to enhance financial transparency and combat illicit activities. The Act’s prime requirement is beneficial ownership information (BOI) reporting by certain business entities operating within the United States. Entities such as corporations, limited liability companies, and similar entities will be required to disclose information regarding their beneficial owners. Beneficial owners are individuals who directly or indirectly control or own a significant portion of the business. BOI reporting will create greater corporate transparency and accountability, and enable law enforcement and regulators to better identify and prevent fraudulent activities. Business owners need to understand the BOI requirements to ensure compliance with the CTA and avoid potential penalties.

BOI Reporting: Who is Required to Report and What Information is Needed

Under the CTA, certain entities are required to report their beneficial ownership information through BOI reporting. This includes corporations, limited liability companies (LLCs), family limited partnerships and other similar entities that were created by filing a document with a secretary of state under the laws of a state or Indian tribe, or were formed in a foreign country and registered to do business in the United States.

The information that needs to be reported on the company includes:

•   the company’s legal name and all assumed names (DBAs)
•    Address of the principal place of business (a street address, not a PO Box)
•    the state or country where the business was formed; and
•    tax identification number

 It is important to note that this information is sensitive and must be accurately reported to ensure compliance with the law. By understanding who is required to report and what information is needed, businesses can proactively prepare and fulfill their obligations under the CTA, promoting transparency, accountability, and overall business compliance.

What is Beneficial Ownership and Who is a Company Applicant

Beneficial ownership refers to the individuals who ultimately own or control a business entity, even if their ownership is held indirectly. The CTA defines a beneficial owner as a person who owns 25 percent or more of the company, or someone who exercises “substantial control” over the company. Understanding beneficial ownership is crucial for businesses because it helps to establish transparency and accountability. Senior officers of a corporation or managers of a limited liability company are examples of people who could exercise substantial control over a company.

A company applicant is another important role distinguished under the Act. A company applicant is someone who drafts or files an entity formation document with the Secretary of State’s office (such as a Certificate of Formation for an LLC formed in Texas). A company may need to report more than one company applicant if more than one person was involved in drafting and filing the formation document. For example, a company that hired a law firm to form an LLC may need to report both the attorney that drafted the Certificate of Formation and the paralegal who filed the Certificate of Formation with the Secretary of State. 

To comply with the Act, companies will have to report the following on beneficial owners:

•    full legal name
•    birth date
•    current address
•    unique identification number from an acceptable for of ID, such as a driver’s license or passport 
•    a copy of the ID.

In addition, for companies formed on or after January 1, 2024, the same information reported on beneficial owners will also have to be reported on company applicants. 

Deadlines for CTA Reporting

When a company must file its initial report depends on when it was formed:

  • If created before January 1, 2024, the initial report is due by January 1, 2025
  • If created on or after January 1, 2024, and before January 1, 2025, the initial report is due within 90 days of creation
  • If created on or after January 1, 2025, the initial report is due within 30 days after creation.

After a company sends off its CTA report, it’s not done forever. If anything changes, the company must update that report. Examples of changes that require updated CTA reporting include change to a beneficial owner’s address, death of a beneficial owner, change in company officers, changes of any person or entity who owns 25% or more of the company, and a minor child who would be a beneficial owner reaches the age of majority.

Penalties for Non-Compliance 

Failure to comply with the reporting requirements of the CTA can result in severe penalties. Ignorance of the law is not an excuse and will not protect businesses from facing these consequences. The Act has been enacted to promote transparency and combat illicit activities. Non-compliance can lead to a fine up to $10,000 and up to 2 years imprisonment. It is therefore essential for businesses to stay informed about their obligations under the Act and take proactive measures to ensure accurate and timely reporting of beneficial ownership information. By prioritizing compliance and staying ahead of regulatory changes, businesses can mitigate the risks associated with non-compliance and maintain their credibility in the marketplace.

FAQs

What is the Corporate Transparency Act and why was it implemented?

The Corporate Transparency Act (CTA) is a piece of legislation that aims to increase transparency in corporate ownership in the United States. It was implemented to combat illicit activities that can be facilitated by anonymous shell companies. The CTA requires certain companies to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), which will create a national registry of this information. By collecting and maintaining this data, the act aims to make it harder for criminals to hide their identities and engage in illegal activities through opaque corporate structures.

What are the new reporting requirements under the Corporate Transparency Act?

The CTA introduces new requirements for certain entities in the United States. Under the CTA, companies, LLCs, and similar entities must submit beneficial ownership information to FinCEN. This information includes the identities of individuals who directly or indirectly own or control 25% or more of the entity. The goal of these requirements is to enhance transparency and combat terrorism financing and other illicit activities. Failure to comply with the CTA’s reporting obligations may result in fines.

How can businesses ensure compliance with the new reporting requirements?

Businesses can ensure compliance with the new requirements by staying informed about any changes in regulations, conducting regular internal audits to identify any areas of non-compliance, implementing robust reporting systems and processes, training employees on the new requirements, and seeking guidance from legal and compliance professionals when needed. It is also important for businesses to maintain accurate and up-to-date records, be transparent in their reporting practices, and proactively address any issues or discrepancies that may arise. By taking these steps, businesses can minimize the risk of non-compliance and maintain regulatory compliance.

What information will businesses be required to disclose under the Corporate Transparency Act?

Under the CTA, businesses will be required to disclose beneficial ownership information, which includes the identities of individuals who directly or indirectly own or control 25% or more of the company. This includes their name, date of birth, address, and identification number. The purpose of this requirement is to prevent the misuse of shell companies for illicit activities such as terrorism financing and tax evasion.

Are there any penalties for non-compliance with the reporting requirements of the Corporate Transparency Act?

Yes, there are penalties for non-compliance with the requirements of the CTA. The Act imposes civil fines of $500 per day, up to $10,000 per violation. It also allows for criminal prosecution, including imprisonment for up to two years for knowingly providing false or fraudulent information. These consequences serve as deterrents to ensure that businesses comply with the requirements and provide accurate and transparent information.

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