How to Navigate the Complexities of the Corporate Transparency Act

ARTICLE | March 06, 2024

Title: Understanding the Corporate Transparency Act and Beneficial Ownership Information Reporting 

The Corporate Transparency Act (CTA) has emerged as a crucial piece of legislation, adding a new dimension to business transparency in the United States. The Act, which forms part of the National Defense Authorization Act, was designed to combat illicit activities such as money laundering and the financing of terrorism. The primary mechanism through which the CTA hopes to achieve this is by requiring certain companies to report Beneficial Ownership Information (BOI).

Starting from January 1, 2024, the Financial Crimes Enforcement Network (FinCEN), an agency within the U.S. Department of the Treasury, began accepting BOI reports. However, this responsibility does not apply to all companies.

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Who Needs to Report?

Only businesses that fit the definition of a reporting company are required to submit BOI. These include corporations, limited liability companies (LLCs), and other entities created through the filing of a document with a secretary of state or a similar office under state or Native American tribal law. Foreign entities registered to do business in the U.S. through similar filings are also included.

However, a list of 23 types of entities, including government authorities, banks, credit unions, and large operating companies employing more than 20 full-time employees with a significant presence in the U.S., are exempt from these requirements.

Beneficial Owners: Who Are They?

A beneficial owner, as per the CTA, is an individual who either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. A company might have multiple beneficial owners, and there is no maximum cap on the number that must be reported.

What Information is Required?

Reporting companies are mandated to provide accurate and current beneficial ownership information to FinCEN. This includes the full legal name of the reporting company, its complete current U.S. address, jurisdiction of formation, and IRS taxpayer identification number (TIN), including an employer identification number (EIN). Information about each beneficial owner, such as full legal name, date of birth, residential or business address, and a unique identification number from an acceptable identification document, must also be included.

Submission Deadlines and Penalties

Companies existing before January 1, 2024, must file their initial BOI report by January 1, 2025. Companies created between January 1, 2024, and December 31, 2024, have 90 days from their creation to file their initial reports. Companies created on or after January 1, 2025, have 30 days from their creation to file their initial reports. Any changes to the reporting company or any of its beneficial owners must be reported to FinCEN within 30 days.

Non-compliance with the CTA carries hefty penalties. Willful violation of BOI reporting requirements may lead to civil penalties of up to $500 per day the violation continues and criminal penalties of up to two years imprisonment, along with a fine of up to $10,000.

In conclusion, the CTA represents a significant step towards enhancing business transparency in the U.S. However, it also necessitates careful compliance on the part of reporting companies. It is advisable to consult with your legal counsel on BOI reporting requirements to ensure compliance. You can also visit the FinCEN website for more information and stay updated on the latest updates by subscribing to their email list.