Effective January 1, 2024, the Corporate Transparency Act (“CTA”) has come into force, bringing with it substantial reporting obligations on small businesses. Given the stringent reporting obligations, tight reporting deadlines, and steep penalties associated with noncompliance, it is critical to be well informed about the new law and take the necessary steps to adhere to it. This article aims to provide insight into who the CTA covers, reporting obligations in Beneficial Ownership Information reports, timeline to comply, and repercussions for noncompliance.
Who is covered by the Corporate Transparency Act?
The CTA requires every registered corporation, limited liability company, limited partnership, or similar entity doing business in the United States (“Reporting Companies“) to disclose beneficial ownership information unless exempt. The CTA outlines 23 exemptions, mostly applicable to larger companies such as governmental entities, banks, credit unions, and various other regulated institutions. Large operating companies are exempt, which are entities with more than 20 full time employees, more than $5 million in gross receipts or sales, and have an operating presence in a US physical office. Moreover, inactive companies are also exempt, which are entities that: (1) were in existence on or before January 1, 2020, (2) are not engaged in active business; (3) are not owned by a foreign person; (4) have not experienced any change in ownership in the preceding twelve months; (5) have not sent or received any funds in an amount greater than $1,000 in the preceding twelve months; and (6) does not otherwise hold any assets, including ownership in any other entity.
Smaller companies, particularly those not heavily regulated and lacking significant government filings, are the primary focus of this legislation.
What does the Corporate Transparency Act require for Beneficial Ownership Reports?
Reporting Companies covered by the CTA are now required to disclose certain information on the Reporting Company, Beneficial Owners, and Company Applicants in Beneficial Ownership Information reports (“BOI Report”) that are filed with the Financial Crimes Enforcement Network (“FinCEN”). Beneficial Owners are individuals who exercise substantial control over the entity (i.e., managers, managing members, CEO, etc.), own 25% or more of the entity, or receive substantial economic benefits from entity assets. Company Applicants are those responsible for forming the entity and those primarily responsible for directing or controlling the filing.
Below are the BOI Report Requirements for Reporting Companies, Beneficial Owners, and Company Applicants:
| Reporting Company | Beneficial Owners and Company Applicants |
|
· Full legal name of the entity · Trade name or dba name of the entity · Current US address · State, tribal, or foreign jurisdiction of formation · Taxpayer identification number including the EIN |
· Full legal name of each Beneficial Owner and Company Applicant · Date of birth of each Beneficial Owner and Company Applicant · Current address of each Beneficial Owner and Company Applicant · ID number for each Beneficial Owner and Company Applicant · Copy of ID document (passport, driver’s license, state issued ID) |
How long do Reporting Companies have to submit BOI Reports?
Reporting Companies formed prior to January 1, 2024 will have until January 1, 2025, to comply with the new law while Reporting Companies formed on or after January 1, 2024 will only have ninety days after formation or registration to file the Beneficial Ownership Report.
What are the penalties for noncompliance with the Corporate Transparency Act?
Failure to comply with the CTA may result in burdensome penalties including a civil penalty of $500 per day and criminal penalties of up to $10,000 in fines and up to two years imprisonment for an entity’s willful failure to report or willful inclusion of false information.
What does this mean for your business?
The CTA imposes a substantial and unprecedented reporting obligation on small businesses with potentially severe penalties for noncompliance. Small businesses formed prior to 2024 will need to ensure compliance by January 1, 2025, while small businesses established after the new year will need to ensure compliance within ninety days of formation or registration.
Should you have any questions or require additional information, please do not hesitate to contact us. We’re here to help ensure your compliance with this new law and safeguard your business interests.