Corporate Transparency Act
What is the Corporate Transparency Act?
A new set of laws aimed at curtailing illicit business practices went into effect on January 1, 2024. The Corporate Transparency Act (“CTA”), passed in 2021, was enacted to eliminate the use of shell entities to commit tax fraud, money laundering, and many other illegal activities. The CTA requires the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Department of the Treasury, to maintain a nationwide database of information regarding companies and their owners, which can be shared with authorized recipients, including certain federal agencies and federal, state, or local law enforcement.
What companies must report?
Most entities that are created by filings with the secretary of state (“Reporting Companies”) fall under the act, including corporations, LLCs, and LLPs, and must now report certain information to FinCEN. The reports must include identifying information about the individuals who directly or indirectly own or control a Reporting Company (“Beneficial Ownership Information”), as well as information regarding the applicant who filed the registration formation documents. Beneficial Ownership Information includes the names, birth dates, addresses, and a government-issued identification number (such as a passport number or a state ID or driver’s license number) of the beneficial owners (those who own a 25% or more interest in the company or exercise substantial control).
However, certain entities are exempt from the reporting requirement of the CTA. To qualify for an exemption, the company must fall within one of twenty-three exempt entities such as a bank, a large company with more than 20 full-time employees and $5m in yearly gross revenue, or an inactive entity. Furthermore, any company not formed by filing with the secretary of state is not subject to reporting requirements, including sole proprietorships and general partnerships. A full list of exempt entities can be found at https://www.fincen.gov/boi-faqs#A_1.
When do I have to report?
Existing Reporting Companies can file a report starting January 1, 2024, and must file a report before January 1, 2025. New Reporting Companies formed during 2024 must report within 90 days of formation. After 2024, all new Reporting Companies must report within 30 days of formation.
It is important to note that any changes made to the control or ownership of the entity after submitting the initial report, as well as any changes in the personal information of the applicant or beneficial owners, should be promptly updated within 30 days of such changes.
What are the penalties for not reporting?
Business owners who are not exempt must make sure that they file their reports within the given deadline. Failure to comply with the CTA reporting requirements can lead to civil and criminal penalties for both the Reporting Company and the beneficial owners. The civil penalties can be as high as $500 per day, and a criminal violation may result in imprisonment for up to two years and fines of up to $10,000. It is essential to meet the deadline to avoid any legal consequences.
To file a report, as well as for more information, please visit https://www.fincen.gov/boi. If you are a current business client and would like our assistance with this matter, please contact our office by November 15, 2024, in order to file a report by the end of 2024.
