Enacted to combat the misuse of anonymous shell companies in illicit activities, the Corporate Transparency Act (CTA) represents a pivotal shift in U.S. corporate reporting regulations. Effective from January 1, 2024, this legislation mandates that certain entities disclose their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
Under the CTA, failure to report accurate beneficial ownership information or the provision of false information can lead to significant penalties. Civil penalties can accrue up to $500 per day of non-compliance, while criminal penalties may include fines up to $10,000 and imprisonment for up to two years. Senior officers of non-compliant entities can also face accountability for reporting failures.
Reporting Requirements & Deadlines
The reporting timeline under the CTA varies based on the registration date of the company:
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Companies registered before January 1, 2024, must report by January 1, 2025.
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Companies registered between January 1, 2024, and December 31, 2024, have 90 days from registration.
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Companies registered after January 1, 2025, must report within 30 days of registration.
Updates or corrections to beneficial ownership information must be filed within 30 days of any changes.
Who Needs to Report?
Entities defined as "reporting companies," which include domestic corporations, limited liability companies (LLCs), and similar entities formed by filing with a state office, are subject to reporting requirements unless exempt. There are currently 23 exemptions, including entities like banks, governmental authorities, and certain financial market utilities.
Beneficial Owners & Company Applicants
Beneficial owners, defined as individuals with substantial control (e.g., senior officers or those with significant decision-making authority) or ownership stakes of at least 25%, must be disclosed. Additionally, company applicants involved in the formation process must also be reported. This includes individuals who file or direct the filing of incorporation documents, such as attorneys or CPAs.
Exemptions & Professional Services
The CTA exempts certain entities and professionals from reporting requirements, including state-licensed insurance producers and inactive entities. However, professionals involved in the creation or registration of reporting companies, such as attorneys and CPAs, are considered company applicants and must be reported unless specifically exempted.
Required
Information Checklist
Reporting companies must provide detailed information about themselves, including legal names, addresses, and IRS Taxpayer Identification Numbers (TINs). Beneficial owners and company applicants must furnish personal details such as full legal names, addresses, and unique identifying numbers from acceptable identification documents like passports or state-issued IDs.
FinCEN
Identifiers
To streamline reporting, individuals and reporting companies can obtain FinCEN identifiers, which replace certain personal information in reports. These identifiers are obtained by submitting personal details and identification documents to FinCEN.
BOI Details
Reports must include full legal names, addresses, and identification details of beneficial owners and company applicants, or FinCEN identifiers where applicable. This ensures compliance with the CTA's stringent requirements.
The Corporate Transparency Act represents a critical step in enhancing transparency and accountability in corporate governance within the United States. By requiring the disclosure of beneficial ownership information, it aims to prevent financial crimes and ensure that entities operate with integrity and accountability.
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For more information on how the Corporate Transparency Act impacts your business or legal obligations, consult with our experienced professionals and legal advisors at Thakur Law Firm by filling out the form below.