The Corporate Transparency Act (CTA), set into motion in January 2021 as part of the Anti-Money Laundering Act of 2020, signifies a paradigm shift in U.S. business transparency regulations. Geared towards curbing financial crimes facilitated by shell companies, this law mandates extensive reporting by nearly all U.S. companies, LLCs, and similar entities. Effective from January 1, 2024, the law requires these entities to disclose their true 'beneficial' owners to the Financial Crimes Enforcement Network (FinCEN). This is done by submitting the Beneficial Ownership Information (BOI) report.
In simple terms, businesses have to share important details about people who own or control 25% or more of the company. It's a way to make sure everyone knows who is really behind a business and to prevent it from being used for illegal activities.
The compliance deadlines for submitting a BOI report depend on when your entity was formed or registered to do business in the U.S.
If your business existed before January 1, 2024, you have one year from that date to file your initial BOI report. The deadline is December 31, 2024.
If you form a new entity or register to do business on or after January 1, 2024, you must submit your initial BOI report within 30 days of formation/registration.
There is a proposal to extend this deadline to 90 days for entities formed or registered in 2024.
Important Note: After submitting the initial report, you must update FinCEN within 30 days if any BOI information changes.
Exceptions to Reporting
Not all companies are obligated to adhere to the reporting requirements of the Corporate Transparency Act (CTA). The law offers various exemptions based on an entity's activities and revenue. As per FinCEN guidance, a "reporting company" typically encompasses any domestic or foreign corporation, LLC, or similar entity formed by filing documentation with a Secretary of State or equivalent state office. Nevertheless, there are 23 specified exemptions detailed in the CTA regulations.
Key exemptions encompass:
Publicly traded entities and their subsidiaries
Banks and credit unions
Entities with significant economic presence and operating revenues in the U.S., meeting criteria such as:
Over 20 full-time U.S. employees
Exceeding $5 million in U.S. sales revenue or assets
Certain regulated entities like investment advisors, broker-dealers, etc.
Most small and medium-sized businesses are likely subject to compliance unless they meet the criteria for one of these exemptions. Companies should meticulously assess the exemptions to ascertain if they qualify for exclusion from reporting.
The BOI (Beneficial Ownership Information) report necessitates the inclusion of the following particulars:
Reporting Company Information:
Business street address
Jurisdiction of formation
Taxpayer Identification Number (TIN)
Beneficial Owner Information:
Definition: Individuals exercising substantial control over the entity or owning/controlling at least 25% of ownership interests.
Details for each beneficial owner:
Full legal name
Unique identifying number from an acceptable identification document
The applicant is the individual initiating the entity's formation or registration to conduct business.
Full legal name
Unique identifying number
Contact details for an individual authorized by the reporting company to act as a point of contact on its behalf.
Consequences and State Legislation
Noncompliance with the Corporate Transparency Act (CTA) carries significant repercussions. Fines of up to $10,000 and imprisonment for a maximum of 2 years may be imposed for providing false or incomplete information. Importantly, these penalties extend beyond the business entity to individuals responsible for noncompliance or holding senior officer positions during the violation.
Beyond federal regulations, certain states have implemented their transparency laws. New York, in 2021, enacted the Corporate Transparency Act, mandating LLCs and corporations to disclose beneficial ownership information. A parallel initiative in California aims to introduce a comparable law, though it has not yet been approved.
While state laws entail distinct filing procedures and penalties for noncompliance, it's crucial to note that adherence to federal CTA requirements remains mandatory, and state laws do not exempt entities from complying with these federal obligations.
Legal Disclaimer: This blog post is intended for informational purposes only and does not constitute legal advice. The information provided should not be relied upon as a substitute for consultation with a qualified attorney regarding your specific situation.