By Attorney Curtis A. Edwards
As we usher in a new year on January 1, 2024, the Federal government will also be ushering in the era of the Corporate Transparency Act (CTA), which creates new reporting obligations for businesses operating in the United States. Designed to combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities, the CTA mandates that most entities disclose their beneficial ownership information (BOI). This blog delves into the key aspects of the CTA, shedding light on its reporting requirements, compliance and implications for businesses.
Who Does the CTA Apply To?
The CTA applies to a broad spectrum of entities, including U.S. businesses formed by filing with a Secretary of State (Department of Financial Institution in Wisconsin), including most small family businesses, LLCs, corporations, and even entities designed to hold real estate and conduct no other business. Foreign entities registering to do business in the U.S., and certain excluded entities, such as highly regulated entities, public companies, and government authorities also fall under the purview of the CTA. While there are some exemptions, such as for churches, charities, and other nonprofit organizations, it’s crucial for business owners to assess their classification and compliance requirements.
Understanding Beneficial Ownership:
One of the core elements of the CTA is the obligation for reporting companies to disclose information about their beneficial owners. A beneficial owner, in this context, is an individual who owns or controls at least 25% of the reporting company or exercises substantial control over its operations (which might include any individual employed as an officer, director, manager, chief financial officer or investment trustee).
Reporting companies are required to furnish comprehensive information, including legal and trade names, corporate address, jurisdiction of formation, TIN or EIN, and details about beneficial owners and company applicants. Beneficial owners must be identified either through a FinCEN identifier or by providing their legal name, date of birth, address, and a unique identifying number and photograph from a current passport or a state or government issued document, such as a driver’s license.
Entities formed after January 1, 2024, must disclose information about their company applicants – individuals responsible for forming the entity or directing the filing process. If your entity is being formed by a law firm, this will generally be the paralegal or staff member that files the document and the attorney who is primarily responsible for directing or controlling the filing.
Domestic reporting companies face varying deadlines depending on their formation date, with the initial reports due by January 1, 2025 for entities formed before January 1, 2024, or within 30 calendar days of formation for entities formed on or after January 1, 2024. Foreign reporting companies follow a similar timeline, aligning with the date of registration or public notice.
Updates and Corrections:
To ensure accuracy, reporting companies must promptly update any changes to previously reported information within 30 days. The CTA provides a safe harbor for filing corrected reports within 90 days of discovering inaccuracies.
Penalties for Non-Compliance:
The CTA imposes substantial penalties for reporting violations, including civil and criminal penalties of up to $500 per day for ongoing violations and fines of up to $10,000 with a maximum imprisonment of 2 years for willful non-compliance. Businesses are urged to understand and adhere to the new reporting requirements to avoid any negative legal consequences.
Seek Professional Guidance
In conclusion, compliance with the Corporate Transparency Act is complex and nuanced, with each businesses circumstances and ownership structure being unique and requiring a comprehensive analysis. Early awareness, proactive planning, and collaboration with a knowledgeable attorney can help businesses not only ensure compliance now but also establish the necessary protocols to stay in compliance in the future. If you have any questions or are interested in learning more about this topic, please contact Lin Law LLC at (920) 393-1190.