The Corporate Transparency Act (CTA) is new legislation which became effective on January 1, 2024. This pivotal legislation marks a significant change for small and medium-sized businesses across the United States, mandating the disclosure of beneficial ownership information to combat financial crimes like money laundering and terrorism financing. The CTA requires corporations, LLCs, and similar entities to report key details about owners who hold more than 25% of ownership interests or who exert substantial control over the company. Understanding and complying with this act is crucial for businesses to avoid severe penalties and to ensure they are aligned with these important regulatory changes. In this article, we delve into the essentials of the CTA, providing a clear roadmap for businesses to navigate this new compliance landscape.
Key Objectives of the CTA
Curbing Illicit Activities: The CTA is designed to prevent malign actors from using shell companies to disguise and facilitate illegal activities.
Enhancing Transparency: By requiring companies to disclose their beneficial owners, the CTA aims to bring transparency to the corporate structure.
Aiding Law Enforcement: The disclosed information will assist law enforcement and regulatory agencies in their investigations of financial crimes.
Who is Required to Report
A company is considered a reporting company if a document was filed with the Secretary of State or similar office to create or register the entity. Corporations (including S corporations), LLCs, and other entities formed through the SOS are subject to the reporting requirements. Sole proprietors and general partnerships are NOT businesses that are created by registering with the state, are therefore are NOT subject to the Corporate Transparency Act.
Requirements Under the CTA
Reporting Beneficial Ownership Information
Definition of Beneficial Owner: For the purposes of the CTA, a beneficial owner is defined as any individual who, either directly or indirectly, exercises substantial control over the entity, or owns or controls at least 25% of the ownership interests in the entity. This definition is pivotal for small and medium businesses to understand. For example, in a small business, a beneficial owner might be an individual who holds a significant share of the business's stock or a partner with substantial decision-making authority. In medium-sized businesses, it could include key stakeholders or members who play a crucial role in the strategic direction and operations of the company. The focus is on identifying those who have the power to exert significant control, either through ownership or decision-making capacity, ensuring that the true ownership and control structure of the company is transparent and accountable. This definition ensures transparency in business operations, aiming to prevent misuse of corporate structures for illicit activities.
Information to be Reported: For every beneficial owner identified, small and medium businesses are required to report specific information, which includes the individual’s full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document (such as a passport or driver's license number). This requirement ensures that there is sufficient information on record to accurately identify and verify the identity of each beneficial owner.
Deadline for Compliance: For companies that were established or registered before the year 2024, they are required to submit their initial report by January 1, 2025. If the company is formed or registered during 2024, they must file their initial report within 90 days following their establishment or registration. Entities created or registered after 2024 must file the initial report within 30 days of their formation or registration. Should there be any modifications in the previously submitted details about the company or its beneficial owners, it's mandatory to file an updated report within 30 days following these changes. It's crucial for your company to have a robust system in place for identifying and reporting such changes promptly to the Financial Crimes Enforcement Network (FinCEN). Be aware that the consequences for deliberately neglecting to submit both initial and updated reports are severe, with fines amounting to $500 per day of delay, up to a maximum of $10,000, and a potential imprisonment of up to two years.
How to File
The submission of Beneficial Ownership Information (BOI) reports is required to be done electronically. The Financial Crimes Enforcement Network (FinCEN) has facilitated this process through their e-filing portal, which can be accessed at https://boiefiling.fincen.gov/. There are two options available for submitting a report on this platform: firstly, you can directly complete the form on the website and submit it there; secondly, you have the option to fill out a PDF version of the BOI report and then upload this completed document to the portal.
In summary, the Corporate Transparency Act (CTA), which took effect on January 1, 2024, is a significant regulatory update that small and medium-sized business owners need to navigate with precision and care. Understanding the nuances of identifying beneficial owners, submitting accurate reports, and maintaining ongoing compliance can be challenging. T. Sharp Legacy & Wealth Counsel's expertise lies in demystifying these complex legal requirements and providing personalized guidance tailored to your business's specific needs so that your business not only adheres to the CTA’s regulations but also implements best practices for long-term compliance and risk management. Proactive legal consultation is key in adapting to these changes seamlessly, thereby safeguarding your business from potential penalties and ensuring continued operational success in the face of evolving legal landscapes.
