What Businesses Need to Know About the Corporate Transparency Act (CTA)

Starting from January 1, 2024, many businesses must disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This is being done to prevent money laundering, financing of terrorism, and other illegal financial activities.

Under the recently enacted Corporate Transparency Act (CTA), organizations are now required to share information on the real people behind them, so that beneficial ownership can be traced. This is important in order to create a database of such information. On September 29, 2022, the Financial Crimes Enforcement Network (FinCEN) issued final regulations to implement the reporting provisions of the Beneficial Ownership Information (BOI) under the CTA.  If you own a business, you may need to comply with these requirements within the next year.

Who needs to file?

Businesses organized in and outside the United States (US) may be subject to CTA.  Domestic reporting companies include corporations, limited liability companies (LLCs), or similar entities.

Foreign reporting companies include corporations, limited liability companies (LLCs), or any similar entity created under the law of a foreign country and registered to conduct business in any state.

Are any exemptions available?

There are twenty-three categories of exemptions included in the final CTA regulations.  These include publicly traded companies, banks and credit unions, and securities brokers, to name a few. 

Who is a beneficial owner?

A beneficial owner is an individual who has direct or indirect control over a reporting company, either by owning or controlling 25% of the ownership interest or by exercising “substantial control.” In other words, if a person has significant influence or decision-making power over a company, they can be considered a beneficial owner.

If an individual has significant influence over important decisions of a reporting company, they are said to have “substantial control.” This definition encompasses officers and directors of the company, regardless of their formal title or ownership interest in the business. The CTA regulations provide additional clarification of the terms “substantial control” and “ownership interest.”

When must companies file?

The filing deadline depends on the organization or registration date of the reporting company as follows:

• New entities (organized/registered in 2024) — must file within 90 days of organization or registration.
• New entities (organized/registered after December 31, 2024) — must file within 30 days of organization or registration.
• Existing entities (organized/registered before January 1, 2024) — must file by January 1, 2025.
• Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days of the change or discovery.

What information is required to be reported?

The reporting company will need to complete and file its BOI annually.  The information required includes the full name of the reporting company, any trade name or doing business as name, its business address, state of formation, and taxpayer identification number.

When reporting information about a company, it’s important to provide details about the person who owns the company (known as the “beneficial owner”). For newly-created companies, this includes information about the person who is applying to create the company. You will need to provide the owner’s name, date of birth, address, and a unique identification number from a document-issuing jurisdiction, such as a driver’s license or passport, along with an image of that identification document. It’s important to note that there is no limit to how many owners’ information needs to be reported.

The term “company applicant” refers to the person who submits the document that creates a new entity or registers an existing entity for doing business in the US, or the person who is primarily responsible for the filing of such a document. This information is required only for entities created after January 1, 2024, and need not be updated in the future.ture.

Non-compliance Penalties

Failure to comply with the BOI reporting requirement carries potential civil and criminal penalties.  Assessment can include a civil penalty of up to $500 per day that a violation continues and a criminal penalty of imprisonment for up to two years and/or a fine up to $10,000. 

Additionally, if any person who without authorization, knowingly discloses or uses BOI, they may be fined $500 per day (up to $250,000) and are subject to imprisonment for up to 5 years. 

Who will have access to the BOI database?

The CTA allows FinCEN to share BOI information with different types of people and organizations. These include federal agencies involved in national security, intelligence, and law enforcement, as well as state, local, and tribal law enforcement agencies with court approval. The US Department of the Treasury (including the IRS) can also access this information. Financial institutions can use BOI to conduct legally required customer due diligence, but only with their customers’ permission. Additionally, federal and state regulators can use BOI to assess financial institutions’ compliance with required customer due diligence. Finally, foreign law enforcement agencies and certain other foreign authorities can access BOI if they submit a qualifying request through a US federal agency.

Please contact your MSPC advisor at your earliest opportunity to evaluate your CTA compliance requirements.