Are You Clear On The Corporate Transparency Act?
The Corporate Transparency Act (“CTA”) is a new federal law that went into effect on January 1, 2024, in an effort for the Financial Crimes Enforcement Network (“FINCEN”) to combat money laundering. Under the Corporate Transparency Act, business entities must submit information about the beneficial owners of the business to FINCEN through FINCEN’s website at https://boiefiling.fincen.gov/ by filing a Beneficial Ownership Information Report.
What Are the Penalties for Noncompliance?
The CTA carries significant penalties for willful violations of the Act. These penalties include a $500 daily fine for every day that the entity is not in compliance with the CTA. Additionally, the Act imposes up to an additional $10,000 fine and up to 2 years in prison for willful violations.
Who Does The Corporate Transparency Act Impact?
The CTA applies to all Reporting Companies. Under the CTA, a reporting company includes all business entities, both domestic and foreign entities, that have filed documents with a Secretary of State or similar office to create or register the entity. For example, corporations, LLCs, and other entities that are registered with a Secretary of State, are considered reporting companies. This also means that sole proprietors, trusts, and general partnerships are typically NOT considered reporting companies, unless they have filed documents with the secretary of state.
The CTA also allows 23 types of entities to be exempt from filing a complete beneficial ownership report. Most of these exempt entities are exempt because they are in industries that already are subject to similar reporting requirements, such as banks, insurance companies, and accounting firms. Exempt entities must still complete a partial report to file with FINCEN to claim their exemption. An entity that is otherwise exempt could subject themselves to the previously mentioned penalties if they fail to complete a partial report.
Who Must Reporting Companies Include on Reports?
The CTA is concerned with having the information about the “Beneficial Owners” of the reporting company. The Beneficial Owner must be an individual. There are two ways in which a person is a Beneficial Owner. The first way is that a person owns at least 25% of the company. A person can be a Beneficial Owner also if they exercise substantial control over the company. Substantial control can be shown by being a senior officer of the company (President, CEO, COO, etc.), being a Board member with the ability to appoint and remove senior officers, or by having the ability to make important decisions regarding the structure, finances, or scope of the business. The Beneficial Owner must be an individual, so if a trust owns shares in a company or if the trust has substantial control over the business, then depending on the trust documents, a trustee, beneficiary, and/or grantor would be considered the Beneficial Owner.
When Must You File The Report?
The date that you registered with the Secretary of State will also determine your filing deadline for the report. If your entity was filed with the Secretary of State prior to January 1, 2024, then you have until December 31, 2024 to file the report. If the entity was formed during the 2024 calendar year, you have 90 days from date of filing to report. However, beginning January 1, 2025, newly formed entities will have 30 days from the date of filing to submit their report.
These deadlines will be approaching fast. There is no filing fee for the report and reports only need to be updated when there is a change in beneficial ownership of the company (for example if the company was sold to someone else or you hired a new CEO). If you have any questions about these new reporting rules and how they affect your business, we would be happy to discuss them with you.
