The Corporate Transparency Act (CTA) is a recent step toward enhancing transparency in the business sector, aiming to combat illicit activities such as money laundering, tax evasion, and financial fraud. Enacted as part of the National Defense Authorization Act (NDAA) in January 2021, the CTA imposes new reporting requirements on certain U.S. businesses, with the goal of revealing the true individuals—also known as beneficial owners—behind entities that may otherwise operate under a cloak of anonymity.

What is the Corporate Transparency Act?

The CTA requires certain types of businesses to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The primary aim is to reduce anonymous ownership that allows criminals to hide behind shell companies, often used as vehicles for illicit activities like money laundering, organized crime, and tax evasion.

The CTA places the United States among other countries that have already embraced beneficial ownership disclosure, aligning with global efforts to increase financial transparency and curb illegal activities.

Who is Required to Report?

The reporting requirements target smaller, private entities that are more susceptible to misuse for illegal activities. Specifically, any company classified as a “reporting company” under the CTA must submit beneficial ownership information. A reporting company typically includes:

Corporations, LLCs, or similar entities formed in the U.S. or foreign entities registered to do business in the U.S.

Entities with fewer than 20 full-time employees and less than $5 million in annual gross receipts or sales.

Notably, many large and heavily regulated entities, such as publicly traded companies and regulated financial institutions, are exempt from these reporting requirements. This focus on smaller, private entities helps target businesses that may operate under the radar of traditional regulatory oversight.

Who Qualifies as a Beneficial Owner?

A beneficial owner is an individual who exercises substantial control over a company or owns or controls at least 25% of the company’s ownership interests. The CTA stipulates that businesses must report identifying information about each beneficial owner, which includes:

• • Full name
  • Date of birth
  • Residential or business address
  • A unique identifying number from a passport, driver’s license, or other government-issued ID

This information must be submitted to FinCEN and updated within 30 days of any changes, ensuring that the data remains current.

What are the Reporting Deadlines?

For businesses established on or after January 1, 2024, reporting must be done within 90 days of formation or registration. For entities formed before this date, the deadline is January 1, 2025.  Entities formed on or after January 1, 2025, must register within 30 days.  It’s crucial that businesses act swiftly to meet these deadlines and avoid penalties.

Penalties for Non-Compliance

Non-compliance with the CTA can lead to significant penalties. Failure to report or willfully providing false information can result in civil fines of up to $500 per day, with a maximum penalty of $10,000. Criminal penalties may also apply, with potential fines and prison sentences of up to two years. These severe penalties emphasize the importance of understanding and meeting the CTA’s requirements.

Filing of Beneficial Ownership Information

The CTA’s reporting requirements are located on the FinCEN website at www.fincen.gov/boi.  Each reporting company can file the BOI report on its own though the FinCEN website or utilize a Third-Party CTA Service Provider.

Identify Beneficial Owners: Begin by identifying all individuals who qualify as beneficial owners.

Gather Required Information: Gather required information of beneficial owners, including approved government issued IDs.

File and Document: Follow the steps on the FinCEN website to file the BOI.  Be sure to save the receipt of the registration to confirm compliance.

Prepare Your Business for CTA Compliance Today

If you’re a small business owner, it’s crucial to act now to ensure your business complies with the Corporate Transparency Act. The CTA’s requirements may feel burdensome, but the deadlines are fast approaching, and early preparation can save you from costly penalties and stress later.

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