Beginning on January 1, 2024, many companies in the United States will have to report information about their beneficial owners. In other words, the individuals who ultimately own or control the company. They will have to report the information to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury.
The responsibility for compliance with the Corporate Transparency Act (CTA) lies with the business owners themselves. Per guidance from our liability provider, LSWG will not be undertaking the reporting obligations on behalf of your business under the CTA guidelines. It’s imperative for business owners to ensure adherence to the CTA regulations. Especially in reporting beneficial ownership information directly to the appropriate authorities as required by law.
Here, we’ve outlined a concise overview of essential aspects related to the Corporate Transparency Act (CTA).
For more in depth information regarding CTA, please utilize the links below:
- The Financial Crimes Enforcement Network Website
- FinCen’s Small Entity Compliance Guide
General CTA Questions
What is CTA (Corporate Transparency Act)?
The Corporate Transparency Act (CTA), enacted in 2021, was passed to enhance transparency in entity structures and ownership to combat money laundering, tax fraud, and other illicit activities. It is designed to capture more information about the ownership of small businesses operating in or accessing the U.S. market.
What is beneficial ownership information?
Beneficial ownership information refers to identifying details concerning individuals who hold direct or indirect ownership or control over a company.
This includes individuals who:
- Exercise substantial control over a reporting company, or
- Owns and controls at least 25% of the ownership interest of a reporting company
What are the repercussions of failing to comply with the Corporate Transparency Act (CTA)?
Failure to comply could result in substantial penalties ($500 per day up to $10,000 for willful non-compliance and $250,000 for misuse of ownership information) and criminal penalties (up to two years in prison for willful non-compliance and five years in prison for misuse of ownership information)
Why do companies have to report beneficial ownership information to the U.S Department of the Treasury?
In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. This law creates a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.
The Reporting Process
Who has to report?
The entities obligated to report are referred to as reporting companies. There are two categories of reporting companies:
Your company might fall under the category of a reporting company and consequently need to disclose information about its beneficial owners if it meets any of the following criteria:
- Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
- Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
Are some companies exempt from the reporting process?
Yes, 23 types of entities are exempt from the beneficial ownership information reporting requirements. These entities include publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies (with at least 21 full-time employees and $5 million or more of annual revenue).
FinCEN’s Small Entity Compliance Guide (Chapter 1.2) includes checklists for each of the 23 exemptions that may help determine whether your company qualifies for an exemption.
How do I report?
Reporting companies are required to electronically submit beneficial ownership information via FinCEN’s website.
When do I need to report my company’s beneficial ownership information to FinCEN?
Existing Reporting Companies:
Created or registered to do business in the United States before January 1, 2024: Reports due by January 1, 2025
New Reporting Companies:
Created or registered on or after January 1, 2024: A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
Created or registered on or after January 1, 2025: Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.. In