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Stay in Compliance with the Corporate Transparency Act

It is essential to be compliant with the Corporate Transparency Act. If the act applies, not reporting or providing false information can cost you or your company up to $500 a day in criminal penalties. It is also possible to be fined $10,000 in criminal penalties and/or a maximum of 2 years in prison.

For this reason, it is important to determine if reporting is required of your business entity.

 If you are already a client of our firm, please reach out to us at (928) 783-0103 to set up an appointment. We can also share recommendations for other local attorneys that can support you.

As part of the federal government’s anti-money laundering and anti-tax evasion efforts, the Corporate Transparency Act was written into law in 2021. The purpose of this act is to require businesses to report ownership information as an attempt to look beyond shell companies that are set up to hide money. The US government uses this information to prevent bad actors from hiding ownership structures and/or using shell companies to avoid the repercussions of their actions and improperly benefit from those structures.

As of January 1, 2024, many owners of US companies have been required to reveal their “beneficial owners” and certain information about them. Beneficial owners are the individuals who own or control the business. This information is required to be sent to the Financial Crimes Enforcement Network (FinCEN), under the US Department of the Treasury.

Summary: The new regulatory scheme is administered by the federal government’s Financial Crimes Enforcement Network (FinCEN), part of the US Treasury. It requires companies to identify the “beneficial” ownership of a company (that is not otherwise exempted). Most large organizations with 20 or more full-time employees are exempted (see Exemptions in Section 5 below). 

Who needs to report? What you need to know:

1. Reporting Requirements:

Not every company needs to report. Certain corporations, limited liability companies (LLCs), partnerships, and other entities that filed formation papers with a state’s Corporation Commission or Secretary of State office (or similar government agency) must file a Beneficial Ownership Information (“BOI”) report with the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) information regarding the entity’s “beneficial owners.”

2. Due Date:

1. Entities in existence prior to January 1, 2024, have until January 1, 2025, to file these reports.

2. Entities formed in 2024 will have 90 days from the entity’s formation/registration to file these reports.

3. Entities formed after 2024 must file the report within 30 days of the entity’s formation/registration.

4. If any changes or corrections have been made to an entity’s beneficial ownership information (BOI), you are required to report within 30 days.

3. Penalties:

Any willful failure to report information and timely update any changed information can result in significant fines of up to $500 per day until the violation is remedied, or if criminal charges are brought, fines of up to $10,000 and/or two years imprisonment. These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report.

4. Beneficial Owners, Company Applicants and Change of Beneficial Ownership:

Beneficial owners are broadly defined and involve owners who directly or indirectly own more than 25% of the entity’s ownership interests or exercise substantial control over the reporting company (even if they don’t’ actually have an ownership interest). While this may seem to only impact a few significant owners, it can encompass many senior officers of the business as well as those individuals who are involved in any significant business decisions (e.g., board members). Given the severity of the fines, it may be safer to err on the side of over-inclusion rather than under-inclusion.

For entities formed after 2023, information will also have to be provided about the company applicants (the person who actually files the formation/registration papers and the person primarily responsible for directing or controlling the filing of the documents).

The types of information that must be provided (and kept current) for these beneficial owners include the owner’s legal name, residential address, date of birth, and unique identifier number from a nonexpired passport, driver’s license, or state identification card. The entity will also have to provide an image of any of these forms of documentation to FinCEN for all beneficial owners.

5. Exemptions:

There are a total of 23 business entities that do not have to report, including non-profits, publicly traded companies, and some large operating companies.

The following entities are exempt from the CTA:

a. Large Operating Entities:

i) A large operating company must have more than 20 employees on a full-time basis in the United States.

ii) A large operating company must have filed in the previous year federal income tax returns in the United States demonstrating more than $5 million in gross receipts or sales.

iii) A large operating company must have an operating presence at a physical office within the United States.

b. For publicly traded companies and heavily regulated companies that already provide ownership information to a government agency and specifically excludes: (a) a majority of financial service institutions, including those investment, accounting, and banking firms that report to government agencies (i.e., SEC, FDIC, etc.)

c. Certain non-profit organizations such as churches and public charities.

To reiterate, if you are a current or former client, please reach out to the office at (928) 783-0103 to make an appointment to review your compliance.