The Corporate Transparency Act (CTA) is a significant new law that will impact millions of businesses across the United States. The CTA passed in 2021 and took effect in January 2024. It is designed to enhance transparency and help combat illegal activities like money laundering, terrorism financing, and tax evasion by requiring certain business entities to report their beneficial ownership information (BOI) to the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN).

If you're a business owner or involved with a business entity, it's essential to understand how this law applies to you and what steps you need to take to remain compliant. In this blog post, we'll break down the key aspects of the Corporate Transparency Act, the filing requirements, deadlines, and potential penalties for non-compliance.

What Is the Corporate Transparency Act?

The Corporate Transparency Act was enacted as part of the Anti-Money Laundering Act of 2020. Its primary goal is to increase transparency around the ownership of U.S. businesses by requiring them to disclose their beneficial owners—the individuals who ultimately own or control the company.

Before the CTA, many companies could operate with limited oversight regarding their ownership structure, which created vulnerabilities for criminal activities like shell companies hiding illicit funds. The CTA aims to close this loophole by establishing a federal reporting system that tracks who owns and controls businesses in the U.S.

Who Needs to File?

The CTA applies to a wide range of business entities, including:

-          Corporations

-          Limited liability companies (LLCs)

-          Other similar entities created by filing with a state or tribal authority

However, not every business entity is required to file. Certain exemptions apply, including, but not limited to::

-          Publicly traded companies

-          Banks

-          Insurance companies

-          Large operating companies with more than 20 employees and over $5 million in annual revenue

-          Certain regulated entities

If your business doesn't fall into one of these exemptions, you may be required to comply with the CTA's filing requirements.

Filing Deadlines and Requirements

One of the most important aspects of the Corporate Transparency Act is understanding when you need to file and what information must be submitted. Here's a breakdown of the deadlines based on when your business was created or registered:

-          Companies created or registered before January 1, 2024: will have until January 1, 2025, to file their beneficial ownership report with FinCEN.

-          Companies created or registered in 2024: Must report within 90 days of the company's creation or registration.

-          Companies created or registered on or after January 1, 2025: Must file within 30 days of receiving actual or public notice that the company's creation is effective.

When filing, businesses must disclose beneficial ownership information (BOI), which includes:

1.      The full legal name of the beneficial owner

2.      Date of birth

3.      Residential address

4.      A unique identifying number from an acceptable identification document (e.g., a driver's license, passport)

This information is submitted to FinCEN, where it will be securely stored and accessible only to authorized parties, such as law enforcement agencies.

What Are the Penalties for Non-Compliance?

Failing to comply with the CTA can lead to severe penalties, including:

-          Civil penalties of up to $500 per day for each day the violation continues.

-          Criminal penalties, which can include fines of up to $10,000 and/or imprisonment for up to 2 years for willful violations.

These penalties highlight the importance of meeting the CTA's filing requirements and deadlines.

Next Steps: How to Prepare for the Corporate Transparency Act

With the Corporate Transparency Act in effect in and the deadline to file approaching, now is the time to ensure your business is prepared. Here are a few steps to take:

1.      Review your business structure: Determine if your business is subject to the CTA's reporting requirements.

2.      Gather beneficial ownership information: Ensure you have accurate and up-to-date information for all beneficial owners of your business.

3.      Consult with a legal professional: If you're unsure how the CTA applies to your business, consider speaking with a lawyer who focuses in business law.

Final Thoughts

The Corporate Transparency Act represents a significant shift in how businesses must disclose ownership information, and understanding its implications is crucial for business owners. By staying informed and meeting filing requirements, you can avoid penalties and ensure that your business remains compliant with the law.