In 2021, the U.S. Congress introduced the Corporate Transparency Act (CTA), signaling a pivotal shift in the regulatory landscape for businesses. Designed to enhance transparency and curb illicit activities such as money laundering and tax fraud, this legislation mandates a new beneficial ownership reporting requirement. As a business owner or startup, understanding the intricacies of this act is crucial for compliance and avoiding civil or criminal penalties. Let’s delve into the key aspects of the CTA and outline the necessary steps for businesses to ensure they meet the reporting requirements.
Unmasking the Corporate Transparency Act
The CTA applies to a broad spectrum of entities, encompassing corporations, limited liability companies, and other entities created through the filing of formation documents. Referred to as “Reporting Companies,” these entities are subject to reporting beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). While the rules are complex, in general, each entity must file its own report and a holding company is not permitted to file one report on behalf of all of its subsidiaries. Currently, there are 23 types of entities that are exempt from the law’s reporting requirements. Most exceptions apply to companies that currently report information to other regulatory agencies, such as public companies, securities broker-dealers, and financial institutions. Please see the full list of exemptions here. It’s critical to carefully review the qualifying criteria before concluding that your company is exempt.
Defining Beneficial Ownership
Central to the act is the concept of beneficial ownership. Businesses must identify individuals who either exercise substantial control over the company or own/control at least 25% of its ownership. The required information includes full legal names, birthdates, addresses, and copies of identification documents for these beneficial owners, such as photos of current passports or driver licenses. The term “substantial control” is a subjective one and is an analysis that must include on an individual basis an evaluation of each of the company’s board of directors, advisory board members, officers and directors, or other key stakeholders.
Critical Dates for Compliance
Beginning January 1, 2024, Reporting Companies must submit beneficial ownership information through FinCEN’s Beneficial Ownership Secure System (BOSS). The timeline for filing varies based on the company’s creation or registration date, ranging from 30 to 90 days after receiving notice.
* Companies created or registered before January 1, 2024, have until January 1, 2025, to file their initial report.
* Companies created or registered on or after January 1, 2024, must file within 90 days of notice or public registration.
* Companies created on or after January 1, 2025, have a 30-day filing window.
* Updates to previously reported BOI reports must be submitted no later than 30 days after the date on which the change
occurred.
Penalties for Non-Compliance
Strict penalties await those who fail to comply. Fines of $500 per day for each violation up to $10,000 and imprisonment up to two years may be imposed for providing false information or neglecting to report data to FinCEN. With such consequences at stake, businesses must diligently adhere to reporting deadlines and accuracy.
Taking Action: Ensuring Compliance
To navigate the CTA successfully, business owners and startups should first determine if the beneficial ownership rule applies to their entities. Staying informed about updates from FinCEN, including reporting forms and access to BOSS, is essential.
In a landscape where transparency is key, understanding and adhering to the CTA ensures not only legal compliance but also contributes to a more accountable and secure business environment. Stay informed, stay compliant, and pave the way for a transparent and responsible future for your business.
Melody Ashby is a Senior Attorney at Meyer Law, one of the fastest growing law firms in the United States. Melody helps companies with corporate and securities matters, trademarks, contracts, employment matters and capital raises. Melody is a mentor at tech incubators and accelerators across the United States. Learn more about Meyer Law here + follow us on Instagram @loveyourlawyer
