Is Your Business Ready for the Corporate Transparency Act? Here's What You Need to Know
The Corporate Transparency Act (CTA), enacted on January 1, 2021, as part of the National Defense Authorization Act, marks a significant overhaul of the Bank Secrecy Act and related anti-money laundering regulations. Designed to combat money laundering, terrorism financing, and other illegal activities, the CTA mandates certain entities, primarily small and medium-sized businesses, to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department.
Who Needs to Comply?
Entities required to comply with the CTA, known as Reporting Com0070anies, include corporations, limited liability companies (LLCs), and other types of companies created through filings with a Secretary of State (SOS) or equivalent official. The CTA also applies to non-U.S. companies registering to do business in the U.S. However, many entities already regulated by federal, or state governments are exempt, as they already disclose beneficial ownership information to governmental authorities. Beneficial Ownership Information | FinCEN.gov
A notable exemption is for "large operating companies," which meet all of the following criteria:
Employ at least 20 full-time employees in the U.S.
Have gross revenue over $5 million on the prior year’s tax return
Operate from a physical office in the U.S.
Who is a Beneficial Owner?
A beneficial owner is any individual who directly or indirectly exercises substantial control or owns at least 25% of the company's ownership interests. Substantial control is defined as:
Serving as a senior officer of the company.
Having authority over the appointment or removal of senior officers or a majority of the board.
Influencing important company decisions.
Beneficial owners can exert control through board representation, ownership rights, financing arrangements, or control over intermediary entities.
Reporting Requirements Phase-In
The CTA’s reporting requirements will be phased in as follows:
New Reporting Companies (formed or registered after January 1, 2024): Must report required information within 90 days of formation or registration.
Existing Reporting Companies (formed or registered before January 1, 2024): Must report required information by January 1, 2025.
Preparing for the CTA
To ensure compliance with the CTA, companies should consider the following steps:
1. Determine Applicability: Assess if your company is subject to the CTA or qualifies for any exemptions.
2. Identify Beneficial Owners: Calculate ownership interests and identify individuals who exercise substantial control.
3. Establish Processes: Implement procedures to monitor changes in beneficial ownership and ensure timely reporting to FinCEN.
Key Information to Report
For each beneficial owner, companies must provide:
Legal name
Residential address
Date of birth
Unique identifier number (e.g., passport, driver’s license, state ID) and an image of the document
Immediate Actions
Given the complexity and legal implications of the CTA, it is crucial to seek legal guidance to navigate compliance. Companies may need to revise operative documents to include representations, covenants, indemnifications, and consent clauses related to the CTA.
Penalties for Non-Compliance
Penalties for willful violations of the CTA’s reporting requirements include:
Civil penalties up to $591 per day of non-compliance
Criminal fines up to $10,000
Imprisonment for up to two years
For more information, refer to FinCEN’s [Frequently Asked Questions document] (https://www.fincen.gov/boi-faqs).
Next Steps:
Option 1: We strongly encourage you to contact legal counsel with expertise in this area to assist your organization in ensuring compliance with the CTA.
Option 2: If you have any questions regarding your organization’s compliance with the CTA, please contact us, and we can help you evaluate your specific situation and determine what CTA-related services we can provide.
Stay informed and proactive to navigate the CTA's requirements effectively and avoid significant penalties. Reach out to us at Carlson Hearne CPA if you have any questions.
