What Business Owners Need to Know About Corporate Transparency Act (CTA)

Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA), enacted in the United States in January 2021, mandates that certain businesses disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Business owners need to pay attention to several key aspects regarding compliance with the CTA:

1. Beneficial Ownership Reporting:

• Definition: A beneficial owner is any individual who directly or indirectly owns or controls at least 25% of the ownership interests in a company or exercises substantial control over the company.

• Information Required: Businesses must report the name, date of birth, address, and unique identification number (e.g., passport or driver’s license number) of each beneficial owner.

2. Entities Subject to the CTA:

• The CTA primarily targets corporations, limited liability companies (LLCs), and similar entities. However, there are exemptions, such as:

• Large operating companies with more than 20 full-time employees and over $5 million in gross receipts.

• Certain regulated entities, including banks, credit unions, and investment companies.

3. Reporting Deadlines:

• Existing Entities: Businesses formed before the effective date of the regulations (expected January 1, 2024) have two years to file their initial reports.

• New Entities: Businesses formed after the effective date must file their initial reports within 30 days of formation.

4. Updates to Information:

• Businesses must update their reports within 30 days of any change in beneficial ownership information.

5. Penalties for Non-Compliance:

• Failure to comply with the CTA can result in civil penalties of up to $500 per day until the report is filed, and criminal penalties can include fines up to $10,000 and imprisonment for up to two years.

6. Confidentiality and Data Security:

• The information reported to FinCEN is not publicly accessible and is intended to be used only by authorized government authorities and financial institutions for specific purposes.

7. Impact on Business Practices:

• Business owners should review and potentially update their internal processes to ensure compliance with the CTA. This includes maintaining accurate and up-to-date records of beneficial ownership information.

8. Legal and Compliance Advice:

• It is advisable for business owners to seek legal and compliance advice to navigate the complexities of the CTA and ensure all reporting requirements are met.

For further details, business owners can refer to resources provided by legal and financial advisory firms, as well as the official FinCEN website.

Sources:

• FinCEN

• Harvard Law School Forum on Corporate Governance

• National Law Review