The Corporate Transparency Act: What You Need to Know
Introduction
The Corporate Transparency Act (“CTA”) was enacted in 2021 as a result of the Anti-Money Laundering Act of 2020, in an effort to cut back on money-laundering, fraud, corruption and other financial crimes. The CTA went into effect on January 1, 2024.
What happens starting January 1, 2024?
Beginning January 1, 2024, all entities formed or registered to do business in the United States will need to either (i) confirm they qualify for an exemption from the CTA’s reporting requirements or (ii) timely submit a beneficial ownership information report to the U.S. Treasury’s Financial Crimes and Enforcement Network (“FinCEN”). The initial report is due within 90 days of the filing*.
Existing reporting companies that were created prior to January 1, 2024, will have until January 1, 2025, to comply with the CTA reporting requirements.
Who has to comply?
Any reporting entity unless they fall under an exception. A “reporting entity” is any entity that is formed by filing a document with the state (i.e. corporation, limited liability company, limited liability partnership, etc.).
What reporting entities fall under an exception?
There are 23 stated exceptions under the Act:
- Securities reporting issuer
- Governmental authority
- Bank
- Credit union
- Depository institution holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund adviser
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company**
- Subsidiary of certain exempt entities
- Inactive entity***
In summation, most exemptions cover entities under an industry that is already regulated by another industry.
Who is a beneficial owner?
Any individual who exercises substantial control over the company or who owns at least 25% of the ownership interest.
What do I have to do to comply with the CTA?
Initial report
Within the reporting deadline, you must file an initial report with FinCEN. The report will be electronically filed.
The reporting company will have to report:
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Legal name and any trade names such as DBAs (doing business as).
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Street address for company’s principal place of business (not a P.O. box or lawyer or other adviser’s address).
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State of formation.
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Tax Identification Number (a passthrough entity, like single member LLC that doesn’t have a tax identification number, may have to obtain and provide a unique identifying number)
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An identifying document from an issuing jurisdiction (e.g., a certificate of incorporation) and the image of that document.
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The full legal name, date of birth, current residential street address, and unique identifying number from a passport, state identification, or driver’s license and an image of that document for each beneficial owner and company applicant.
Requirement to update
Any changes to the information provided to FinCEN (new beneficial owner, address change, name change, etc.) must be reported within 30 days of the change.
What happens if I don’t comply?
The willful failure to report complete or updated beneficial ownership information to FinCEN may result in civil penalties, of up to $500 for each day (up to $10,000) that the violation continues or criminal penalties, including imprisonment for up to two years. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
How long will it take for an entity to complete the FinCEN filing?
FinCEN estimates that the average burden of reporting a beneficial ownership information as 90 minutes per response for reporting companies with simple beneficial ownership structures and 650 minutes per response for reporting companies with complex beneficial ownership structures.
How can Addicus help?
Contact us today to discuss how Addicus can assist you with your reporting obligations under the CTA.
*Within 90 calendar days of the earlier of the date on which the reporting company receives actual notice that its creation/registration has become effective OR the date that a secretary of state (or similar office) first provides public notice, such as through a publicly-accessible registry, that the domestic company has been created or the foreign reporting company has been registered. Effective January 1, 2025, the reporting-deadline decreases to 30 days.
