What Is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act (CTA), which went into effect in January 2024, is intended to help the government fight various illicit financial activities like money laundering and tax evasion. If you are a business owner, you need to understand that the CTA might require your company to report certain information to the government in order to be compliant. Our goal at Seder & Chandler, LLP is to help businesses of all sizes and in all industries make sure they understand and comply with the various laws and regulations that affect them. Learn more about what the CTA means for your organization.
The Basics of the CTA
Tax fraud, money laundering, and even funding terrorist and organized criminal groups remain persistent plagues in the corporate environment. To help put an end to this, Congress enacted the Corporate Transparency Act in 2021, which went into effect at the start of 2024. The CTA has the ambitious goal of preventing individuals with malicious intent from using their ownership of U.S. companies to facilitate criminal operations that jeopardize national security, public safety, and economic integrity.
Businesses that meet certain criteria are required to submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN). The purpose of this report is to provide pertinent details that identify individuals (known as beneficial owners) who are associated with the business. A "beneficial owner" is anyone who directly or indirectly owns a significant stake in a company or exercises substantial control of the company. Examples include individuals who:
- Have a significant influence on the company's decisions or operations
- Own 25% or more of the shares in the company
- Have another, similar level of control over the company's equity.
- An individual can exercise substantial control over a reporting
company in different ways including:
- The individual is a senior officer (the company's president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function).
- The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
- The individual is an important decision-maker for the reporting company.
Which Companies Are Subject to the CTA?
The following business entities, whether domestic or foreign, are required to file a BOI Report with FinCEN. They are considered a reporting company under the law:
- Limited liability companies (LLCs)
- Corporations
- Other business entities created by filing a document with a Secretary of State or similar office
There are exceptions, however. Publicly traded companies, large operating companies, and businesses that meet other specific criteria might be exempt from the CTA. Moreover, companies that do not fall into one of the categories listed above are not required to file a BOI Report.
Information That Must Be Reported Under the CTA
Reporting companies are required to inform FinCEN of the following information:
- Legal names
- Trade Names
- Current U.S. address (main business site or, for foreign companies, their operational location)
- Taxpayer identification number
- The identity of the jurisdiction in which they were formed or registered
These details about each beneficial owner must also be submitted to FinCEN:
- Name
- Date of birth
- Address
- Identifying number and issuer from either a non-expired U.S. driver's license, a non-expired U.S. passport, or a non-expired identification document issued by a state, U.S. territory or possession, local government, or Indian tribe (if none of these exist, a non-expired foreign passport can be used)
- An image of the above-mentioned identifying document
This information only needs to be submitted once, unless anything in the report needs to be updated or corrected.
Reporting companies that were created or registered to conduct business in the United States before January 1, 2024 must file their reports by January 1, 2025. Reporting companies that were created or registered to do business in the United States after January 1, 2024 must file within 90 calendar days of receiving notice that their company's creation or registration is effective. Civil penalties of up to $500 per day can be imposed for failing to comply.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.