The Corporate Transparency Act (CTA) is a law designed to combat illegal activity by providing federal authorities with information about individuals who run U.S. businesses. The CTA, enacted in 2021, went into effect in 2024. Under the rules, corporations and other registered entities must file information about beneficial owners and other applicants. The goal is to combat activities like 澳洲幸运5官方开奖结果体彩网:money laundering and tax fraud. Learn more about this law, why it was enacted, and who it affects.

The Corporate Transpar꧂ency Act (CꦰTA): An Overview

The Corporate Transparency Act was introduced as part of the Anti-Money Laundering Act of 2020, which was itself part of the 澳洲ꦍ幸运5官方开奖结果体彩网:National Defense Authorization Act (NDAA). Although then-President Donald Trump vetoed the NDAA, Congress overrode the veto on Jan. 1, 2021.

Under the law, which went into effect on went into effect on Jan. 1, 2024, any company registered to do business in the United States, including corporations, 澳洲幸运5官方开奖结果体彩网:limited liability companies (LLCs), and other business entities, must report information about its beneficial owners and other parties to the U.S. 澳洲幸运5官方开奖结果体彩网:Department of the Treasury and its 澳洲幸运5官方开奖结果体彩网:Financial Crimes Enforcemen🦂t Network (FinCEN) bureau.

The goal of the CTA is to prevent illicit activity. This includes money laundering, terrorist financing, corruption, 澳洲幸运5官方开奖结果体彩网:tax fraud, human and drug trafficking, and 澳洲幸运5官方开奖结果体彩网:securities fraud among other things. According to FinCEN, the law is designed to minimize the burden on businesses in the U.S.

“Through the CTA, Congress directs the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish and maintain a national registry of beneficial owners of entities that are deemed ‘reporting companies...’ Congress stated that bad actors seek to conceal their ownership of business entities through the use of shell companies to facilitate illicit activities, including money laundering, the financing of terrorism, human and drug trafficking, and securities fraud.”

Reporting Under the Corporate Transpa🍰rency Act (CTA) 

Since the law went into effect in 2024, reporting companies have until Jan. 1, 2025, to file their initial report with FinCEN. Companies formed after Jan. 1, 2025, must file their first report within 30 days.

In late November 2023, FinCEN extended the deadline for companies created or registered in 2024, giving them 90 calendar days “from the date of receiving actual or public notice of their creation or registration becoming effective to file their initial reports.”

 According to Harvard Law School’s Forum on Corporate Governance, a reporting company can include “(1) any corporation, LLC, limited partnership or similar entity created by filing a document with any U.S. state, territory, or Indian tribe (domestic reporting companies), and (2) any non-U.S. entity that registers to do business with any U.S. state, territory, or Indian tribe (foreign reporting companies).”

The law requires that companies report information about the company itself and every individual who qualifies as a beneficial owner. If the company was created or registered on or after Jan. 1, 2024, it must identify up to two company applicants. The table below highlights the information companies, beneficial owners, and company appl🐠ica🦹nts must file.

The law provides exemptions for 23 types of businesses, including banks, 澳洲幸运5官方开奖结果体彩网:credit unions, insurance companies, and what it calls large operating companies. To qualify as a large operating company, a business must have more than 20 full-time employees in the United States and an operating physical office in the U.S. In addition, it must have reported more than $5 million in gross receipts or sales on its tax forms for the previous year.

Beneficial Owners vs. Company Applicants

This section defines beneficial owneಌrs and compan🐈y applicants, according to the CTA.

Beneficial Owner

A beneficial owner, as defined by FinCEN, “is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.”

FinC💝EN says a person exercises substantial control if they are any of the follow💎ing:

• A senior officer (“president, chief financial officer, general counsel, chief executive office[r], 澳洲幸运5官方开奖结果体彩网:chief operating officer, or any other officer who performs a similar function”)
• An individual with “authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company”
• An “important decision-maker for the reporting company”
• Or someone who would otherwise qualify under the rules spelled out in FinCEN’s Small Entity Compliance Guide
  

The CTA marks a seismic shift in the legal landscape for businesses operating in the United States. Before the CTA, entity beneficial owner 澳洲幸运5官方开奖结果体彩网:disclosure was solely (if at all) the purview of state or tribal law. Now it is a focus and purview of federal law enforcement agencies,” according to the American Bar Association.

Company Applicant

Company applicants under the CTA rules are individuals who file the paperwork to create or register a company. If there is more than one person involved, company applicants are directors or those who primarily control the company.

As noted above, companies can report up to two company applicants, and they don’t have to report any company applicant if the company was created or registered on or after Jan. 1, 2024.

FinCEN’s Fraudulent Correspondence Warning 

The new requirements being imposed by the CTA have created an opportunity for scam artists to cash in. The FinCEN website now includes an alert that the agency “has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled ‘Important Compliance Notice’ and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests.”

FinCEN’s advice: “Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.”

Implementation and Compliance 

As mentioned, reporting companies will generally have until Jan. 1, 2025, to file their initial report with FinCEN. However, companies formed after Jan. 1, 2025, will be required to file their first report within 30 days, and those created or registered in 2024 will have 90 calendar days to file.

If you are required to report your company’s 澳洲幸运5官方开奖结果体彩网:beneficial ownership information to FinCEN, there will be a form on the FinCEN BOI webpage to file electronically through a secure filing system now being developed.

Companies that fail to comply with the law by “willfully” failing to report or update their beneficial ownership information or provide false BOI information can be subject to both civil and criminal penalties. Those include fines of $500 a day, up to a maximum of $10,000, and up to two years in prison.

The Harvard Law School Forum on Corporate Governance notes, “The CTA does not contain any provision for non-willful or negligence penalties.”

Impact on Small Businesses

The CTA has been criticized as putting an undue burden on 澳洲幸运5官方开奖结果体彩网:small businesses, in particular because most of them won’t qualify for the large operating company exclusion described abov🐽e.

A Wall Street Journal editorial warned in November 2023 that “millions of small businesses may soon be snared by onerous reporting requirements and fines for noncompliance.”

While arguing that small businesses have no choice but to comply with the new law, an article on the American Bar Association’s website observed, “The Act is designed to cast a broad net to ‘catch’ a small niche of nefarious actors hiding behind the ‘corporate veil.’ Unfortunately, the vast majority of business entities that now must comply with the CTA, including most small businesses, are unwitting and innocent bycatch in the CTA’s net.”

Recent Changes to the Corporౠate Transparency Act

In addition to extending the deadline for companies formed in 2024, FinCEN amended its rules on BOI reporting in November 2023, specifying how businesses could substitute FinCEN identifiers for information on individual beneficial owners.

The identifiers are numbers that individuals and companies can obtain from FinCEN once they have supplied the information normally required as part of BOI reporting. FinCEN identifiers are meant to simplify the reporting process.

The Bottom Line

The Corporate Transparency Act represents an attempt by the U.S. Congress to curtail money laundering, the financing of terrorist activities, and other crimes. Critics say it imposes an undue burdꦬen on millions of small businesses in order to catch the tiny fraction of them that may be breaking the law.