Corporate Transparency Act (CTA) Compliance Bulletin
THIS IS AN IMPORTANT ADVISORY ABOUT THE NEW, FEDERALLY MANDATED REPORTING REQUIREMENTS UNDER THE CORPORATE TRANSPARENCY ACT (“CTA”) THAT MAY IMPACT YOUR BUSINESS.
Overview of the Corporate Transparency Act (CTA)
The Corporate Transparency Act (CTA) mandates the reporting of beneficial ownership information for most U.S. corporations, limited liability companies (LLCs), and similar entities to the Financial Crimes Enforcement Network (FinCEN). This is part of the U.S. government’s efforts to combat money laundering, terrorist financing, and other illicit financial activities.
As of January 1, 2024, certain entities are required to report the identities of their beneficial owners and company applicants to FinCEN, which will store this data in a confidential database. This database will be accessible to law enforcement and other authorized users, but not to the general public.
Key Requirements Under the CTA:
1. Covered Entities:
- Domestic entities: Corporations, LLCs, and similar entities created in the U.S. by a filing with a Secretary of State or the equivalent.
- Foreign entities: Foreign entities that are registered to do business in the U.S.
2. Reporting Requirements:
- Beneficial Owners: Entities must report the personal information of beneficial owners who own 25% or more of the entity or control the entity regardless of ownership. This includes individuals who directly or indirectly own or control the entity.
- Company Applicants: Entities must report the individuals who filed the formation documents or registered the entity with the state if created after January 1, 2024.
3. Exemptions: Some entities are exempt from reporting under the CTA, including:
- Large operating companies with more than 20 employees, over $5 million in annual revenue, and a physical office in the U.S.
- Regulated entities such as banks, credit unions, insurance companies, and other entities already subject to extensive federal or state regulation.
4. Deadlines:
- Entities created or registered after January 1, 2024 must file their initial report within 90 days of formation or registration.
- Existing entities created before January 1, 2024 must file their initial report by January 1, 2025.
- Subsequent updates to beneficial ownership information must be filed within 30 days of any changes.
5. Penalties for Non-Compliance: Failure to comply with the CTA can result in:
- Civil penalties of up to $500 per day for failure to file.
- Criminal penalties, including fines up to $10,000 and possible imprisonment for individuals who willfully provide false or fraudulent information.
Action Steps for Clients:
Information about the reporting requirements, the BOI E-Filing System, and filing instructions are available on FinCEN’s beneficial ownership information webpage, www.fincen.gov/boi, which also includes answers to frequently asked questions. We urge you to go to this webpage to review and understand your legal obligations to file the BOIR with FinCEN prior to the applicable deadline.
1. Review Entity Structure: Determine if your business is a covered entity under the CTA. This includes reviewing all domestic and foreign entities in your organization.
2. Identify Beneficial Owners and Company Applicants: Identify the individuals who meet the definition of “beneficial owners” (those owning 25% or more or substantially controlling the entity) and the individuals who were involved in the creation of the entity (company applicants).
3. Prepare Required Information: Ensure that you have the employer identification number or social security number if a single member LLC, the full legal names, dates of birth, addresses, and identifying numbers (e.g., passport, driver’s license) of all required parties.
4. File with FinCEN: File the required information with FinCEN either via their secure online portal or through your legal counsel. Make sure to file within the specified deadlines to avoid penalties.
5. Maintain Accurate Records: Keep accurate and up-to-date records on your entity’s ownership structure and any changes in beneficial ownership, as these need to be updated in your CTA filings within 30 days.
If you have questions about your reporting obligations, please contact us. There are also independent compliance service companies that, for a fee, can assist you with filing the BOIR with FinCEN. We can provide you upon request with a list of these independent compliance service companies.