Are You Compliant? The Corporate Transparency Act's New Requirements That Could Affect Your Business

In an effort to increase corporate transparency and prevent illicit activities such as money laundering and terrorism financing, the Corporate Transparency Act (CTA) mandates that certain business entities disclose detailed information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This new requirement impacts a wide range of corporations, LLCs, and other entities—practically affecting everyone except individuals and sole proprietorships. It is crucial for business owners and managers to understand their reporting obligations under the CTA to avoid significant penalties. Here’s a comprehensive overview of what you need to know and how it applies to your business.

What is the Corporate Transparency Act?

The Corporate Transparency Act requires certain business entities to file reports with the Financial Crimes Enforcement Network (FinCEN), disclosing beneficial ownership information. Beneficial owners are individuals who own or control 25% or more of an entity or who exercise substantial control over the entity.

Who Must Report?

The CTA applies to a broad range of entities, including corporations, limited liability companies (LLCs), and similar entities created by filing a document with a secretary of state or similar office. However, there are several exemptions, including:

1. Large Operating Companies: Entities with more than 20 full-time employees, more than $5 million in gross receipts or sales, and a physical office within the United States.

2. Regulated Entities: Financial institutions and other entities already subject to substantial federal or state regulation, such as banks, insurance companies, and public accounting firms.

3. Inactive Entities: Entities that have been in existence for over one year, are not engaged in active business, and do not hold any assets.

4. Tax-Exempt Organizations: Entities that are tax-exempt under section 501(c) of the Internal Revenue Code.

5. Certain Pooled Investment Vehicles: If operated or advised by specific types of financial institutions.

What Information Must Be Reported?

Entities required to report under the CTA must provide FinCEN with:

1. Personal Information: Full legal name, date of birth, current residential or business address, and a unique identifying number (such as a driver’s license or passport number) for each beneficial owner.

2. Entity Information: Legal name, any trade names, current address, state of formation, and a unique identifier from FinCEN.

When to Report?

• Existing Companies: Entities created or registered before January 1, 2024, must file by January 1, 2025.

• Newly Created Companies: Entities created or registered after January 1, 2024, must file within 90 days of their creation or registration.

Beneficial ownership information reporting is not an annual requirement. Reports only need to be submitted once unless there is a need to update or correct information.

Updating Information

Entities must file an updated report within 30 days of:

• A change in beneficial ownership

• A change in the information reported for any beneficial owner

• Becoming aware or having reason to know of inaccurate information previously reported

Penalties for Non-Compliance

Failure to comply with the CTA can result in severe penalties, including civil penalties of up to $500 per day of non-compliance and criminal penalties of up to $10,000 and two years in prison. Therefore, timely and accurate reporting is essential to avoid these repercussions.

How to Prepare

1. Assess Applicability: Determine if your entity falls within the scope of the CTA or qualifies for an exemption.

2. Gather Information: Collect the necessary information on beneficial owners to ensure accurate and complete reporting.

3. Establish Compliance Procedures: Implement internal processes to maintain up-to-date records and report changes promptly.

4. Educate Stakeholders: Inform beneficial owners about the reporting requirements and the need for timely updates.

5. Secure Information: Implement robust data protection measures to safeguard the sensitive information being collected and reported.

Privacy Considerations

While the CTA requires the disclosure of sensitive information, FinCEN has implemented strict access and security protocols. The information collected will not be publicly accessible and can only be disclosed to authorized government authorities or financial institutions with customer consent.

International Implications

Foreign-owned entities operating in the US are not exempt from the CTA unless they meet one of the specific exemption criteria. These entities should pay particular attention to the reporting requirements and ensure compliance to avoid penalties.

Beware of Fraudsters

As with any new regulatory requirement, fraudsters may attempt to exploit businesses unfamiliar with the CTA. Be cautious of unsolicited offers to assist with CTA compliance, especially if they request sensitive information or payment. If you need assistance:

1. Verify Credentials: Only work with reputable, licensed professionals.

2. Use Official Channels: Refer to the official FinCEN website for information and reporting.

3. Consult Trusted Advisors: Seek guidance from your established legal counsel or accountant.

4. Be Wary of Urgency: Fraudsters often create a false sense of urgency. Take the time to verify before acting.

If you’re unsure about your obligations or need assistance with compliance, it’s advisable to consult with a trusted accountant or lawyer who is familiar with the CTA requirements.

Future Outlook

While the CTA is set to be implemented as described, it’s possible that there may be future adjustments or expansions to the law. Stay informed by regularly checking the FinCEN website or consulting with your legal advisor for any updates.

Conclusion

The Corporate Transparency Act is a landmark law that enhances corporate transparency and aims to prevent the misuse of entities for illegal activities. Compliance with the CTA requires diligence and proactive measures to ensure that all required information is accurately reported to FinCEN. By understanding your obligations under the CTA, you can protect your business from legal risks and contribute to a more transparent and secure financial system.

For personalized guidance and assistance with CTA compliance, feel free to reach out to Hessquire Law PLLC. I’m here to help you navigate these new requirements and ensure your business remains compliant with all applicable laws.

Additional Resources

For more information, visit the official FinCEN website: https://www.fincen.gov/boi

For further information or assistance, contact Paul Hess at Hessquire Law PLLC:

• Website: https://www.hessquire.com/

• Email: paul@hessquire.com

Stay compliant, stay informed, and safeguard your business with expert legal advice.

Feel free to reach out if you have any questions or need assistance with any legal matters. I’m here to support you every step of the way.