Corporate Transparency Act
New Reporting Requirements for Business Owners
In a move aimed at enhancing transparency and combating financial crimes, the Corporate Transparency Act (CTA), effective beginning 2024, introduces new reporting requirements for both domestic and foreign reporting companies operating in the United States. Companies will be required to file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN). This means your company must file and disclose its beneficial ownership. Failure to file can result in civil penalties of up to $500 for each day that the violation continues or criminal penalties including imprisonment for up to two years and/or fines up to $10,000.
Understanding Beneficial Ownership
Beneficial ownership is a key concept at the heart of the Corporate Transparency Act. It pertains to identifying individuals who either directly or indirectly own or control 25% or more of the “ownership interests” of a reporting company or who exert “substantial control” over the company. This information will shed light on who holds the real power within a business, even if they aren’t the face of the organization.
Key Deadlines for BOI Reporting
The CTA outlines specific deadlines for different categories of reporting companies:
- Domestic Reporting Companies Created Before January 1, 2024, and Foreign Entities Registered Pre-2024:
If your company falls into this category, then you have until January 1, 2025, to file your initial Beneficial Ownership Information report. This extended timeline allows existing businesses to adapt to the new regulations and ensure compliance.
- Domestic Reporting Companies Created on or After January 1, 2024, and Foreign Entities Registered on or After January 1, 2024:
For newer businesses, the reporting deadline is more immediate. Companies created or registered between January 1, 2024 through December 31, 2024 will have a 90-day window to submit the initial BOI report. Entities created or registered on or After January 1, 2025 will have 30 days to file their initial BOI report. This countdown begins either upon the company receiving notice of its creation or registration being effective, or upon a secretary of state or similar office’s first public notice of the company’s creation or registration, depending on which event occurs first.
How to File
BOI reports will be submitted electronically via a secure filing system. The development of this system is currently in progress, and will be operational in advance of the report submission deadline.
The Rationale Behind the Act
The Corporate Transparency Act represents a significant step in the fight against financial crimes, including money laundering, tax evasion, and other illicit activities that may thrive when ownership structures remain obscured. By requiring companies to disclose information about their beneficial owners, the CTA aims to create greater transparency, making it more difficult for criminals to hide behind anonymous corporate entities.
Is the Information Public?
You are probably asking yourself who will have access to information about the ownership of your company. FinCEN is set to authorize Federal, State, local, and Tribal officials, alongside select foreign officials who make a request through a U.S. Federal government agency, to access beneficial ownership data for activities pertaining to national security, intelligence, and law enforcement. Additionally, financial institutions may access beneficial ownership information under specific circumstances, provided they have the reporting company’s consent. Regulatory bodies overseeing these financial institutions will also have access to beneficial ownership information as part of their supervisory duties.
FinCEN is currently in the process of developing rules governing the access and management of beneficial ownership information. The data submitted to FinCEN will be securely stored in a non-public database using robust information security protocols and controls consistent with those employed by the Federal government for safeguarding sensitive, unclassified information systems at the highest security level.
Implications for Business Owners
For business owners, compliance with the Corporate Transparency Act is crucial. Failing to meet the reporting requirements may lead to legal consequences, including fines and other penalties. Understanding the CTA’s provisions and deadlines is essential, and seeking legal counsel or consulting with regulatory experts can help navigate the complexities of the reporting process.
The Corporate Transparency Act, along with its Beneficial Ownership Information reporting requirements, marks a significant shift in how domestic and foreign reporting companies conduct business in the United States. By demanding greater transparency about the individuals who control these entities, the act aims to create a more secure and accountable business environment, aligning with the broader global efforts to combat financial crimes. Business owners should stay informed, meet their reporting obligations, and embrace this new era of transparency in corporate governance. We can help. Contact Jackellyn T. Davis, Esq., Head of Licensing and Corporate Compliance for Doss Law, LLP, at (949) 346-8510 or Jackellyn@DossLaw.com for more information or additional assistance.