Effective January 1, 2024, you may need to comply with a new federal law named the Corporate Transparency Act (“CTA”). Under the CTA, absent an exemption, companies must file a report with the Financial Crimes Enforcement Network of the US Department of the Treasury (“FinCEN”) identifying the company’s beneficial owners.
Failure to comply with the CTA may result in civil penalties of not more than $500 for each day the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000.
What do you need to do to comply with the CTA?
- Determine whether your company is subject to the CTA reporting requirements.
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- Your company may need to file a report if: (i) It’s a corporation, a limited liability company, or otherwise created in the United States by filing a document with a secretary state of state or similar offices under the law of a state or Indian tribe, or (ii) a foreign company and was registered to do business in any U.S. state or Indian tribe by such a filing.
- There are 23 types of entities that are exempt from beneficial ownership information reporting requirements, including publicly traded companies, nonprofits, insurance companies, public accounting firms, and certain large operating companies.
- If your company is subject to the CTA reporting requirement, determine the beneficial owners of the company. The CTA defines a beneficial owner, generally, as an individual who owns 25 percent or more of a company or who has substantial control over the company.
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- You are a beneficial owner if you exercise substantial control over the company. For example, are you:
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- A Manager, President, Chief Financial Officer, General Counsel, Chief Executive Officer, Chief Operating Officer, or any other officer, regardless of title, who performs a similar function as these officers;
- An individual who directs, determines, or has substantial influence over important decisions made by the company, including decisions regarding (A) the business, such as, the nature, scope, and attributes of the business, (B) finances of the business, such as sale, lease, mortgage, or other transfer of any principal assets, or (C) structure, such as, reorganization, dissolution, merger or amendments to substantial governing documents.
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- Do you own at least 25 percent of the company. For example, do you:
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- Own 25 percent of the company’s equity, stock or voting rights;
- Own 25 percent the company’s capital or profits interest;
- Have the right to 25% or more in equity, stock, or voting rights or capital profit interest of the company; or
- Have an option or privilege to buy or sell or more 25% or more of the equity, stock, or voting rights, or capital or profit interest of the company.
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- If your company is subject to the CTA reporting requirement, when do you have to file a CTA report?
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- If your company was created or registered prior to January 1, 2024, you have until January 1, 2025.
- If your company was created or registered in 2024, you must file a CTA report within 90 calendar days after receiving actual or public notice of your company’s creation or registration is effective, whichever is earlier.
- If your company is registered on or after January 1, 2025, you must file a CTA report within 30 days after receiving actual or public notice that its creation or registration is effective.
- Any updates or corrections to beneficial ownership information must be submitted within 30 days.
The CTA is intended to provide law enforcement with beneficial ownership information for the purpose of detecting, preventing, and punishing terrorism, money laundering and other misconduct accomplished through business entities. Compliance with the CTA can be burdensome to small businesses. To ease that burden, consult with your legal advisor to assist you with compliance with CTA.
CTA reports may be filed electronically via FinCEN’s website, at https://boiefiling.fincen.gov/.
