It's already February, the holidays are over, and compliance with the Corporate Transparency Act ("CTA") is on everyone's mind.
Here's What You Should Know About the CTA
Enacted in 2021, the CTA — as the name suggests — is a law designed to increase transparency around corporate entities for purposes of combatting money laundering, tax evasion and other unlawful activity. Generally speaking, the CTA's reporting requirements make US corporate reporting more consistent with reporting standards in Europe and other markets, where the notion of private corporate ownership is antiquated, by obligating reporting companies to file information regarding the reporting company and its beneficial owners with the Financial Crime Enforcement Network ("FinCEN").
Here's What the CTA Requires to be Filed
Beginning on January 1, 2024, the CTA requires reporting companies to file (1) full name, (2) date of birth, (3) complete current residential street address, (4) ID number and jurisdiction of issuance of a US passport, state, local, or Indian tribal identification document, or state-issued driver's license; and (5) an image of the document from which the ID number was obtained ("Beneficial Owner Information") for each Beneficial Owner. Beneficial owners are (x) either individuals with an ownership interest of 25% or greater of an entity (y) who has substantial control of an entity (these include, a "senior officer," director, person with ability to appoint or remove a majority of directors, etc.).
Separately, the CTA requires certain information to be filed about the reporting company itself.
The CTA Probably Impacts You
The CTA is designed to be a broad-ranging law. While there are exemptions to the CTA's reporting requirements (23 exemptions exist at the time of this writing), if your entity was formed by the filing of a document with a state entity (i.e. corporate charter, certificate of formation, etc.), a filing requirement likely exists. Most privately held cannabis companies will be required to file under the CTA and will not fall within one of the exceptions.
Get to Work, Now
For domestic reporting companies formed before January 1, 2024, Beneficial Owner Information does not have to be filed until January 1, 2025. For domestic reporting companies formed after January 1, 2024, they will have 90 days to file Beneficial Owner Information with FinCEN. While you do not have to scramble to get this done before January 1, 2024, you do need to come up with a plan for how you can comply with the CTA.
Yes, You
Admittedly, this is a big undertaking; by some estimates, the CTA will require over 30 million entities to file Beneficial Owner Information with FinCEN. But hoping nobody notices that you have not filed is not a safe bet, failure to comply with the CTA carries serious penalties: civil penalties can be as high as $500 per day for willful non-compliance and criminal penalties of up to two years in prison. You do not want to mess around here.
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.
