Two days before Christmas Eve 2020, I drafted this blog post regarding the Corporate Transparency Act (CTA). As of January 1, 2024, the CTA will be enforced for all new and existing entities. If you’re interested in what the CTA means for your business, please read on.
The CTA is set to fundamentally change corporate reporting requirements, impacting millions of businesses in 2024. The Act, designed to thwart illicit financial activities and enhance national security, mandates thorough disclosures of beneficial ownership information.
Who Does the CTA Impact? The CTA applies to a broad spectrum of entities, encompassing both domestic and foreign reporting companies. While there are many exemptions (more on that below), the default assumption on the part of any business owner should be – “my company needs to report under the CTA.”
Exemptions Under the CTA: While the CTA casts a wide net, certain entities are exempt from its reporting requirements. These include securities issuers, banks, credit unions, and various financial entities (which are often reporting the required information in other ways, already). The Act provides a detailed list of 23 exempt entities, offering an outline of which businesses are exempted from compliance.
Understanding Beneficial Owners: The linchpin of the CTA revolves around beneficial owners. These are individuals who either directly or indirectly wield substantial control over a company or own 25% or more of its equity interests. Indicators of substantial control encompass roles like senior officers and individuals with authority over significant decisions.
Required Information for Reporting: Reporting companies must provide information on beneficial owners. This includes their full legal name, date of birth, residential address, and a unique identification number from a valid U.S. passport, license, or ID card. Additionally, companies must report their legal name, trade names, principal business address, jurisdiction of formation, and taxpayer identification number.
Compliance Timeline: Companies established or registered before January 1, 2024, have until January 1, 2025, to file their initial report. Those created after January 1, 2024, must file within 30 days of receiving notice of creation or when the state’s secretary of state publicly announces the company’s formation. Moreover, reporting companies must update FinCEN within 30 days of any changes in their information or that of their beneficial owners.
Penalties for Non-Compliance: Non-compliance with the CTA carries substantial penalties. Violators can face fines of up to $500 per day for each violation, with a maximum fine of $10,000 per willful violation. Additionally, the Act allows for imprisonment and other criminal penalties for egregious violations.
What Actions Should Businesses Take?
- Ask for Help: If you need help, ask us! We’re happy to provide guidance. Your accountant or other professional advisor may be able to assist also.
- Avoid Procrastination: Delaying compliance efforts is not an option. Businesses should start thinking about the reporting process now.
- Amend Governing Documents: Consider amending corporate governance documents (like Operating Agreements and Bylaws) to mandate beneficial owners’ reporting obligations. Clear internal guidelines can make the reporting process much easier.
Conclusion: The CTA is a gamechanger for the United States, and will represent our first attempt at creating a national corporate database and record of who the owners of those companies are. If you’d like to take a deep dive and learn more, the American Bar Association has a great article here.
Thanks for reading.