Understanding The Corporate Transparency Act : What It Means for your Business:
It’s imperative that owners of companies at that are NOT publicly traded, that DO NOT have revenues greater than $ 5 million dollars AND more than 20 employees AND a physical presence in the US file a Beneficial Ownership Information Report (BOIR) .
Failure to file the (BOIR) report by January 1st 2025 may result in a penalty of $500 a day. You may also face criminal penalties for failing to report or providing false information up to $10,000 or imprisonment for up to 2 years.
In Brief:
In an effort to improve transparency and combat illicit financial activities, the U.S. government enacted the Corporate Transparency Act (CTA). This article will provide an overview of the CTA, explain its purpose, and guide you on how to comply with its provisions, while also highlighting the penalties for non-compliance.
What Is the Corporate Transparency Act?
The Corporate Transparency Act was passed as part of the Anti-Money Laundering Act of 2020. It mandates that certain companies report key information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). A “beneficial owner” refers to anyone who exercises substantial control over a company or owns a significant portion of it (typically 25% or more).
Starting January 1, 2024, entities subject to the CTA will need to file a report with FinCEN, disclosing the full names, addresses, dates of birth, and other identifying information of their beneficial owners.
Why Was the CTA Deemed Necessary?
The primary goal of the CTA is to curb the misuse of shell companies and other opaque corporate structures often used to launder money, finance terrorism, evade taxes, or commit other financial crimes. By requiring entities to report the identities of their beneficial owners, the government seeks to:
• Improve national security by preventing the use of anonymous entities for illicit activities.
• Enhance transparency in the financial system, making it harder for bad actors to hide behind complex corporate structures.
• Assist law enforcement agencies in investigating and prosecuting financial crimes more efficiently.
Who Needs to Comply with the CTA?
The CTA applies to a broad range of entities, including corporations, limited liability companies (LLCs), and other similar business structures that are registered in the U.S. or doing business in the U.S. However, not all businesses are subject to the CTA’s reporting requirements. There are several exemptions, including:
• Publicly traded companies.
• Companies with more than 20 full-time employees, $5 million in revenue, and a physical presence in the U.S.
• Certain regulated entities like banks, insurance companies, and broker-dealers.
If your business does not fall under an exemption, you must comply with the CTA’s reporting requirements.
How to Comply with the Corporate Transparency Act :
To comply with the CTA, businesses must file a beneficial ownership information (BOI) report with FinCEN. This report must include detailed information about the company’s beneficial owners, such as:
• Full legal name
• Date of birth
• Residential or business address
• A unique identifying number from a government-issued document, such as a passport or driver’s license.
Existing companies will have one year from the effective date (January 1, 2024) to submit their reports. Newly formed entities will have to submit their reports within 30 days of registration.
After the initial filing, companies must update their beneficial ownership information whenever there are changes, such as a change in ownership or control.
To date, FinCEN has issued guidance, FAQs, videos, and other materials to make compliance as easy as possible.
Penalties for Non-Compliance :
Failing to comply with the Corporate Transparency Act can result in severe penalties. Civil penalties include fines of up to $500 per day for every day the violation continues. Criminal penalties for willfully providing false information or failing to report can result in fines up to $10,000 and imprisonment for up to two years.
It’s important to take these obligations seriously and ensure that your company is fully compliant to avoid costly consequences.
Steps to Ensure Compliance :
To avoid penalties and ensure compliance with the CTA, consider the following steps:
1. Determine if Your Business is Subject to Reporting: Review the exemptions and determine if your business is required to file.
2. Identify Your Beneficial Owners: Make sure you have accurate information on individuals who own or control the company.
3. Prepare and Submit the Report: Ensure your beneficial ownership report is submitted to FinCEN within the required timeframes.
4. Stay Updated: Update your beneficial ownership report whenever there are changes to your company’s ownership structure or control.
5. Seek Professional Guidance: Consider consulting with legal professionals or compliance experts to ensure your filings are accurate and timely.
Conclusion
The Corporate Transparency Act represents a significant shift in the regulatory landscape for many businesses. Its goal of enhancing transparency is vital in combating financial crimes, but it also places new compliance obligations on businesses. By understanding the requirements, acting proactively, and ensuring timely reporting, you can avoid penalties and stay compliant with the law. For businesses navigating these new rules, seeking expert advice is a smart step to ensure seamless compliance.
For more information along with FinCEN’s E-Filing System is available at https://www.fincen.gov/boi.
To File a (BOIR) please go to : https://boiefiling.fincen.gov/fileboir
