Starting January 1, 2024, the Corporate Transparency Act (“CTA”) requires that corporations, LLCs, or other state-registered entities disclose the individuals with ownership or controlling interests in the business. As the reporting deadline rapidly approaches, it is crucial for businesses to take action to ensure compliance and to avoid penalties. Determining what is required of your business and what reporting deadline applies can be complex, but our team is here to guide you through this process!
Key Points of the CTA
- Purpose: The CTA, as part of the Anti-Money Laundering Act of 2020, aims to combat financial crimes and misuse of anonymous shell companies for illegal activities by increasing transparency around business ownership.
- Implementation: The CTA authorizes the Financial Crimes Enforcement Network (“FinCEN”) to:
- collect Beneficial Ownership Information (“BOI”) reports which contain detailed information about the company, its owners and controlling individuals known as “Beneficial Owners”, and the “Company Applicant” (typically the individual who filed the formation documents with the state authority);
- establish a federal database of such BOI reports that will be accessible to specific authorities and organizations; and
- impose civil and/or criminal penalties on those who do not comply.
- Access to BOI Reports: FinCEN is authorized to share BOI reports with federal, state, local, tribal, and international law enforcement agencies, financial institutions, federal regulators, and the U.S. Department of the Treasury. However, disclosure is strictly regulated to protect the privacy of individuals.
Reporting Requirements
- Reporting Deadlines: Companies formed prior to January 1, 2024, have until January 1, 2025, to file their initial BOI report, while those formed after January 1, 2024, must file within ninety days of formation. Companies formed on or after January 1, 2025, will have thirty days after formation to comply.
- Exemptions: The CTA exempts certain companies from filing a BOI report, including, but not limited to, publicly traded companies, those with more than twenty full-time employees, companies with over $5 million in annual receipts, those operating in regulated industries, and subsidiaries of exempt organizations.
- Information Required: The BOI Report must contain:
- Company: Name, DBA names, principal place of business, formation state, and taxpayer identification number.
- Beneficial Owners and Company Applicants: Full legal name, date of birth, residential address, identification number from a state driver’s license, passport, or other state-issued identification, and a copy of the identification.
Penalties for Non-Compliance
Penalties for failing to provide accurate information or for knowingly submitting false details can include fines of $500 per day, up to $10,000, and imprisonment for up to two years, or both. However, penalties can be avoided for unknowingly reporting inaccurate information if a corrected report is submitted within 90 days.
Next Steps
Estimates show that approximately thirty million small businesses will be required to file BOI reports with FinCEN. Understanding the CTA requirements, how it will affect your business, and what steps you need to take to comply can be confusing and easily misunderstood. With the reporting deadline for numerous businesses quickly approaching, if you would like to have us review whether your business needs to file the BOI report or file the BOI report on your behalf, please let us know by replying below or clicking here to set up a consult with us.
Disclosure: This piece is not a comprehensive discussion of the topic addressed and cannot be relied upon as legal advice.