Introduction
The Corporate Transparency Act (CTA), effective from January 1, 2024, signifies a major shift in business regulations, especially for small businesses. This act mandates the filing of Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). For small business owners, it's essential to grasp the nuances of this act to ensure compliance and prevent penalties.
What is the Corporate Transparency Act?
The CTA was enacted to deter illegal activities such as money laundering, corruption, and tax evasion by enhancing transparency in business ownership. It obliges certain companies to disclose comprehensive information about their beneficial owners and company applicants to FinCEN, a bureau of the U.S. Treasury Department tasked with protecting the financial system from illicit activities.
Who Needs to Report?
The CTA categorizes "reporting companies" into two types: domestic and foreign entities, with specific criteria determining their reporting obligations.
Domestic Reporting Company
Any entity established by filing a document with a secretary of state or similar office within the United States.
Foreign Reporting Company
Any entity formed outside the U.S. but registered to conduct business within the country.
Exemptions from Reporting
Some entities are exempt, including publicly traded companies, entities governed by certain financial oversight agencies, and entities exercising governmental authority.
Identifying Beneficial Owners and Company Applicants
Under the CTA, a beneficial owner is an individual who either owns more than 25% of a reporting company's equity interests or exercises substantial control over it. A company applicant is typically the individual who files the documents to form or register the company.
Reporting Obligations
Companies are required to report the legal names, birthdates, addresses, and identification numbers (e.g., driver’s license or passport) of their beneficial owners and company applicants.
Deadlines for Filing Reports
Existing Companies (before January 1, 2024): File by January 1, 2025.
New Companies (between January 1, 2024, and January 1, 2025): File within 90 days post-formation/registration.
New Companies (post-January 1, 2025): File within 30 days post-formation/registration.
Penalties for Non-Compliance
Non-compliance can lead to civil or criminal penalties. It is crucial for businesses to promptly update their BOI reports within 30 days of any changes in beneficial ownership or company applicant information.
Violations and Penalties Under the CTA
Unauthorized disclosure or use of BOI leads to civil penalties of $500 per day until the violation is rectified and may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.
Criminal penalties include fines up to $250,000 or imprisonment for up to 5 years.
Enhanced penalties include fines up to $500,000 or imprisonment for up to 10 years for violations coupled with other U.S. law violations or as part of a pattern of illegal activity involving more than $100,000 within a 12-month period.
FinCEN may also suspend or debar violators from accessing the BO system.
Compliance Steps
Determine Reporting Requirements: Assess if your company is a reporting entity under the CTA.
Identify Beneficial Owners and Company Applicants: Collect required personal details.
File the BOI Report: Submit electronically via FinCEN’s system before the deadline.
Maintain Current Records: Update your BOI report for any ownership/control changes.
Seek Legal Counsel: Consult with a legal expert for full CTA compliance.
Conclusion
The Corporate Transparency Act marks a critical stride toward increased transparency in the U.S. financial system. Complying with the CTA is not just about legal adherence; it’s about participating in the global effort against financial crimes. Small business owners must understand and comply with the CTA to avoid penalties and contribute to this important cause.
If you have any further questions or need assistance with filing your BOI reports, please contact the Law Office of Cathryn D. Gibbs or book a consultation online on our website.
DISCLAIMER: The information and materials on this website are provided for general informational purposes only, and are not intended to be legal advice. No Attorney- Client relationship is created by use of this website. Filling out a form on this site or sending an email does not establish a client-lawyer relationship. In accordance to policy, The Law Office of Cathryn D. Gibbs, PLLC does not accept a new client without first obtaining a signed engagement agreement.
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