The Corporate Transparency Act (CTA) is a law aimed at increasing transparency in corporate ownership to combat financial crimes such as money laundering and terrorism financing. The Act requires certain companies to report Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
Although enforcement of the CTA is currently paused due to a court-issued preliminary injunction, businesses must understand its requirements and prepare for compliance if the law is reinstated.
Who Needs to Report?
A reporting company includes any domestic company formed in the United States or foreign company registered to do business in the U.S. through state filings. However, certain organizations are exempt from these requirements, including:
Large operating companies with more than 20 full-time U.S. employees, over $5 million in annual gross receipts, and a physical office in the U.S.
Public companies subject to SEC reporting.
Nonprofit organizations exempt under specific sections of the Internal Revenue Code.
Regulated entities, such as banks, insurers, credit unions, and brokers.
Subsidiaries of exempt entities may also qualify for exemptions if their ownership interests are wholly controlled by the exempt parent organization.
If your company believes it qualifies for an exemption, it is essential to document this determination and ensure all entities within your corporate structure meet the criteria. Companies must also reevaluate their exemption status if circumstances change.
What Information Must Be Reported?
If your company does not qualify for an exemption, you must report detailed information about the company and its beneficial owners. Beneficial owners are individuals who either own at least 25 percent of the company or exercise substantial control over it. Substantial control can include senior officers, individuals with unilateral decision-making authority, or those influencing significant company decisions.
BOI reports must include:
Legal name, date of birth, and residential address of beneficial owners.
A government-issued ID number, such as a passport or driver’s license, and an image of the document.
For companies formed after January 1, 2024, similar information must also be provided for company applicants, the individuals responsible for filing the formation or registration documents.
To simplify reporting and protect privacy, individuals may apply for a FinCEN identifier. This unique number can be used in place of personal information in BOI reports.
Deadlines and Updates
If the law is reinstated, filing deadlines will depend on when your company was formed:
Companies formed before the effective date of the CTA will likely have until early 2025 to file initial reports.
Companies formed in 2024 will need to file within 90 days of creation or registration.
Companies formed after January 1, 2025, must file within 30 days of creation or registration.
Updates to BOI reports must be filed within 30 days of any changes, such as a new beneficial owner or updates to reported information. Corrections must also be submitted within 30 days of discovering inaccuracies to avoid penalties.
Penalties for Noncompliance
Noncompliance with the CTA can result in significant penalties. Willful violations, such as providing false information or failing to file required reports, can lead to fines of up to $10,000 and imprisonment for up to two years. However, the law includes a safe harbor provision for correcting errors within 90 days of filing.
Although enforcement of the CTA is currently paused, companies should prepare for potential reinstatement. Developing internal policies to manage compliance, identifying beneficial owners, and ensuring accuracy in reporting are proactive steps that can save time and resources later.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult your legal counsel to ensure you are up-to-date with the latest developments and understand your specific obligations under the Corporate Transparency Act.
Sources:
Comments