THE CORPORATE TRANSPARENCY ACT
New Mandatory Reporting Requirements for American Businesses
On January 1, 2024, the Corporate Transparency Act (CTA) went into effect. The CTA requires certain “reporting companies” to report their ownership information to the Financial Crimes Enforcement Network (FinCEN), a division of the United States Treasury.
Although the CTA just went into effect, it was passed in 2021, to “protect the United States from bad actors who exploit anonymous shell companies to engage in money laundering, corruption, sanctions and tax evasion, drug trafficking, fraud, and a host of other criminal offenses with impunity, while legitimate businesses suffer from their misdeeds.”
Under the CTA certain “reporting companies,” which are defined as any corporation, limited liability company or similar entity that was created by filing a document with the Secretary of State, are required to report their beneficial ownership information to FinCEN. There is substantial civil and criminal liability for failing to comply with the CTA.
Reporting Deadlines: The due date for filing a report is controlled by its date of formation.
- Newly Formed Companies: A reporting company formed on or after January 1, 2024, must file a report within 90 calendar days of its formation. After January 1, 2025, the report must be filed within 30 calendar days of the company’s formation.
- Pre-existing Companies: For a reporting company that was formed before January 1, 2024, the company must file a report no later than January 1, 2025.
Exceptions to Reporting: Certain companies are exempt from reporting under the CTA.
- Large Operating Companies. Companies that employ more than 20 full-time employees in the U.S. that have previously filed federal income tax returns reflecting more than $5 million in gross receipts or sales are exempt.
- Inactive entities. Certain companies that have no assets and no revenue are exempt.
- Highly Regulated Companies. Certain highly regulated entities, such as banks, credit unions, and investment companies are exempt
Information to be provided:
Reporting companies that are not exempt, must report the identity of its “beneficial owners.” A beneficial owner is any individual who, directly or indirectly: (i) Exercises substantial control over a reporting company; or (ii) owns or controls at least 25% of the ownership interest of a reporting company.
Substantial control means (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company.
For each beneficial owner, the reporting company must provide the following:
- Full legal name
- Date of birth
- Complete current address
- Unique identifying number from a driver’s license or passport.
- A copy of the document from which the unique identifying number was obtained.
Noncompliance Penalties:
Any person who willfully fails to file reports, files false reports, provides false documents, or unlawfully uses or discloses reports is subject to:
- Civil penalty: $500 per day.
- Criminal Consequences: Fine of up to $10,000, 2 years imprisonment or both. The criminal penalty increases to $250,000, 5 years imprisonment, or both if other crimes are committed with the CTA violation.
If you have questions about the CTA or any other business matter, please do not hesitate to contact our office.
For more information about the CTA please visit. https://www.fincen.gov/boi
Paul Kellogg is an attorney in Cincinnati, Ohio with the Phillips Law Firm, Inc. Paul’s practice focuses on providing comprehensive estate planning and probate services to families and business owners, as well as serving as outside general counsel to entrepreneurs, real estate investors and businesses where he provides guidance and advice on a wide variety of transactions and disputes. He can be reached at (513) 985-2500 or via email at [email protected].
The article is for educational and informational purposes only and does not constitute legal advice. Anyone contemplating taking legal action is urged to obtain proper legal advice from an attorney licensed in your particular jurisdiction.
