The Corporate Transparency Act: Crucial Timelines for Business Owners

If you own or manage a business, regardless of its size, understanding the Corporate Transparency Act (CTA) is crucial. Enacted as part of the Anti-Money Laundering Act of 2020, it marks a significant milestone in ensuring corporate accountability. By shining a light on company ownership, the CTA helps prevent financial misconduct like money laundering, tax evasion and financing of terrorism. Compliance with the CTA not only ensures your business aligns with new legal standards—helping you avoid severe penalties—but also reinforces the integrity of your operations. These business compliance tips will help you navigate the requirements effectively.

Key deadlines are approaching fast: businesses created before Jan. 1, 2024, must file their initial report by Jan. 1, 2025, while those formed after Jan. 1, 2024, have just 90 days after registration to comply. Failing to comply can result in substantial fines and even criminal charges. Read on to learn how to protect your business and meet these new requirements.

What is the Corporate Transparency Act?

Under the CTA, companies are now mandated to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau operating under the U.S. Department of the Treasury. FinCEN’s fundamental objective is to safeguard the financial system from illicit activities through gathering, analyzing and sharing financial intelligence. They are also responsible for strategically employing financial regulations and authorities. Here is a helpful link from FinCEN to frequently asked questions.

Key provisions of the Corporate Transparency Act:

Covered vs. exempt companies:

• Covered companies: The CTA applies to a wide range of entities, including corporations (both C-corporations and S-corporations) formed under state law, as well as domestic and foreign limited liability companies (LLCs), regardless of their membership structure. It also extends to other similar entities created through official filings with state or tribal offices, such as partnerships or trusts formed for business purposes.
• Exempt companies: Certain entities are exempt from this reporting requirement, such as regulated entities like banks and credit unions and large operating companies with more than 20 full-time employees, over $5 million in gross receipts or sales and a physical office in the U.S.

Reporting requirements:

• Beneficial ownership information: Covered companies must submit beneficial ownership information to FinCEN, which includes each beneficial owner’s personal information, such as full legal name, date of birth, residential or business address, and unique identifying number (such as a driver’s license or passport number). This information must be updated within a year of any change.
• Definition of beneficial owner: A beneficial owner is any individual who directly or indirectly owns or controls 25% or more of the ownership interests in an entity. This also includes individuals who exercise substantial control over a reporting company. Examples of such individuals include senior officers like the president/CEO, chief financial officer, general counsel or chief operating officer, the manager of an LLC, and the general partner of a limited partnership.

Important dates:

Jan. 1, 2024: If your company was created or registered to do business before this date, you will have until Jan. 1, 2025, to file your initial beneficial ownership information report.

After Jan. 1, 2024: If your company is created or registered on or after this date and before Jan. 1, 2025, you will have 90 calendar days after receiving notice of your company’s creation or registration to file your initial Beneficial Ownership Information (BOI) report. This 90-calendar day deadline starts from when your company receives actual notice that its creation or registration is effective or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

On or after Jan. 1, 2025: If your company is created or registered on or after this date, you will have 30 calendar days from actual or public notice that your company’s creation or registration is effective to file your initial BOI reports with FinCEN.

Changes in information: If there is any change to the required information about your company or its beneficial owners in a beneficial ownership information report that your company filed, you must file an updated report no later than 30 days after the change date.

Ownership privacy:

FinCEN will maintain a secure, non-public database containing the beneficial ownership information covered companies provide. Law enforcement agencies and other authorized entities can access this information to investigate financial crimes, such as money laundering and terrorist financing.

Penalties for non-compliance:

Failure to comply with the reporting requirements of the CTA may result in civil and criminal penalties, including fines and imprisonment. Intentionally providing false or misleading information to FinCEN is subject to severe penalties. As of this article’s publish date, penalties are estimated as follows:

• Civil penalties: Up to $500 per day of violation, adjusted annually for inflation (currently $591).
• Criminal penalties: Up to two years imprisonment and a fine of up to $10,000.

How to file your company’s beneficial ownership information:

If you must report your company’s BOI to FinCEN, you will do so through a secure online filing system available via FinCEN’s BOI E-Filing website. There is no fee for submitting your BOI form to FinCEN.

Other considerations:

FinCEN identification number: Although obtaining a FinCEN identifier is not mandatory, it may help streamline the reporting of personal information on beneficial ownership reports if the same individual is a beneficial owner of multiple reporting companies. A FinCEN identifier is a unique number issued by FinCEN to individuals or reporting companies upon request. This identifier can be used by reporting companies to replace the personal information of beneficial owners under specific conditions, simplifying reporting processes.

Stay ahead of the changes

As the implementation of the CTA draws nearer, it’s crucial to remain vigilant and proactive. You can effectively navigate the evolving regulatory landscape by understanding the potential ramifications and exploring avenues to ensure compliance. Contact your attorney, wealth manager or tax advisor to guide you on resources to help you through this transition and ensure your business is well-prepared for the changes ahead.