***UPDATE: Per the U.S. Treasury Department announcement, FinCEN is now dead except for some limited foreign entity reporting. See post at FINCEN Filings Terminated for additional information.***

The Corporate Transparency Act (CTA) was enacted to enhance corporate transparency and combat illicit activities such as money laundering and tax evasion. While the primary focus of the CTA is unearthing those involved in illicit activities, most businesses fall under the broad reach of the new legislation. With an effective date of January 1, 2024 rapidly approaching, it is important for business owners to be aware of key obligations under the CTA and to understand how to ensure compliance therewith.  Following is a general overview:

1. Understanding the Corporate Transparency Act:

The CTA aims to create a centralized database, of beneficial ownership information, for business entities (i.e., corporations and LLC’s).  These entities are required to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Limited exemptions are granted to certain entities, including larger U.S. businesses with 20 or more employees and at least $5 million in receipts, as well as those already heavily regulated by the government, such as publicly traded corporations, banks, insurance companies, and non-profits.

2. Reporting Obligations:

Beneficial owners are individuals who have significant control over or own at least 25% of the equity interests in an entity. CTA reporting requirements exclude beneficial owners who are minors (the information for the guardian must be reported instead), nominees or agents of the entity, someone who inherits ownership or a creditor of the entity.  In addition, anyone who files documents related to the creation of an entity, such as the company’s lawyer or other staff, must also provide required information. The information to be disclosed includes the owner’s name, address, date of birth, and a unique identifying number (e.g., Social Security number or driver’s license number).

3. Compliance Deadlines:

The deadline to report depends on when the reporting company was created.

• Existing reporting companies (those formed before December 31, 2023) will have until December 31, 2024, to file their FinCEN report.
• New 2024 reporting companies (those formed during the calendar year of 2024) will have 90 days from the date of the company’s creation to file their initial BOI report.  Post 2024 new reporting companies (those formed after 2024) will have 30 days from the company’s creation to file their initial BOI report.

4. Privacy and Security Considerations:

It is essential for businesses to understand the privacy and security measures in place for the beneficial ownership information that is collected. FinCEN is required to establish protocols to safeguard this sensitive data and to ensure it is protected from unauthorized access and misuse.

5. Penalties for Non-Compliance:

Failure to comply with the reporting obligations under the CTA can result in significant civil and criminal penalties. Business owners may face civil monetary penalties of up to $500 per day and may face criminal charges including imprisonment for up to 2 years and/or a $10,000 fine. Additionally, individuals who knowingly provide false or fraudulent information may be subject to further criminal penalties.

6. Steps for Compliance:

To ensure compliance with the CTA, businesses should take the following steps:

1. Identify beneficial owners: Determine which individuals meet the criteria for beneficial ownership and gather the required information such as name, address, date of birth, and unique identifying number.
2. Prepare and submit reports: Complete the necessary forms and reports as specified by FinCEN while ensuring the accurate and timely submission of beneficial ownership information.
3. Maintain records: Retain copies of filed reports and any supporting documentation for at least five (5) years, as required by the CTA.
4. Stay informed: Regularly monitor updates from FinCEN and other relevant sources to stay current on any changes or additional requirements under the CTA.
5. Report Changes: Information must be updated annually to reflect any changes. If a change in beneficial ownership occurs, ensure that such changes are adequately documented especially professionals that file reports on behalf of your business entity.

It is crucial for business owners to familiarize themselves with the requirements of the CTA and to be proactive.  Compliance with the CTA will help contribute to enhanced corporate transparency and combat illicit activities while avoiding the consequences of non-compliance.  Considering how business owners can easily fall behind on annual reporting requirements, it is likely that many small business owners will encounter penalties under the CTA. Business owners who have encountered such situations should consider establishing a relationship with a business/corporate lawyer who is able to assist in maintaining corporate records and filings.

If you have questions about the CTA as it may relate to your business, the Corporate and Business Lawyers at Lasher are available to help.