The U.S. government has passed legislation that now affects millions of businesses nationwide. If you own a small company, you need to know all about it since failure to comply can result in significant fines and penalties including imprisonment.
Effective January 1 of this year (2024), Congress has put the Corporate Transparency Act into effect as part of the latest Defense Authorization Act. It is designed to help stop money laundering, terrorist financing, tax fraud, and other financial corruption attempts.
Keep reading to learn what it is and what you will now be required to do if you own certain businesses.
What Is The Corporate Transparency Act?
The Corporate Transparency Act was originally passed by Congress in 2021 as HR 6395. It began its journey in 2019, however, when it was introduced as HR 2513 by NY Representative Carolyn Maloney.
Its goal is to help combat financial fraud, corporate corruption, and the funding of illegal activities through our national financial system. Doing bad things can often be expensive. Therefore, many organizations funnel funds through a series of shell companies that exist for the sole purpose of making that money hard to track. In too many cases, that money is then used in the commission of crimes that weaken our financial system or even threaten our national security.
Because of the size and complexity of our country’s financial system and the prominence of the U.S. Dollar as a preferred currency, our nation is particularly at risk for these kinds of activities. Fraud, deceit to create financial gain at the expense of someone else, is extremely common.
According to the most recent National Money Laundering Risk Assessment, “Fraud dwarfs all other proceed-generating crimes that are laundered in or through the United States. The exploitation of data, mainly personal information that is stolen, hacked, or compromised, remains one of the most common methods fraudsters, launderers, and other criminals use to set up bank accounts and conceal fraudulent activity.” CTA aims to change that.
To help prevent financial fraud, the Corporate Transparency Act requires all Corporations, Limited Liability Companies, and other entities that register with a Secretary of State (or similar office) to submit a report with personal information about the owner(s) of that company.
It will be managed under the direction of the U.S. Department of Treasury and their Financial Crimes Enforcement Network (FinCEN), whose stated mission is “to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.”
To accomplish their mission, FinCEN is using what is known as a “beneficial ownership information” (BOI) report. This is what business owners are now required to complete and submit.
The exploitation of data remains one of the most common methods fraudsters, launderers, and other criminals use to set up bank accounts and conceal fraudulent activity. CTA aims to change that.
Beneficial Owner Questions
What is BOI?
According to FinCEN’s BOI Informational Brochure, A “Beneficial Ownership Information” report gives identifying personal information about the individuals “who ultimately own or control the company”. There is no fee for filing, and all information is kept secure. It will not be available to the public; only federal, state, and local authorities as well as financial institutions in certain cases with the consent of the reporting company.
Who has to report Beneficial Ownership Information?
If your company is structured as a Corporation, Limited Liability Company (LLC), Limited Partnership (LP), Limited Liability Partnership (LLP), is a certain business trust, was created by filing documentation with a secretary of state, or is a foreign company registered to do business within the U.S., the CTA requires you to file a BOI Report.
Sole proprietorships, general partnerships, joint ventures, and trusts are usually not created by filing formation documents and therefore, are generally exempt from reporting.
Reporting companies will need to undertake a factual assessment to determine which individuals qualify as beneficial owners from a substantial control perspective.
What are the deadlines for filing a Beneficial Ownership Report?
Companies that meet filing requirements and were created before January 1, 2024, have until January 1, 2025, to file.
Companies created after January 1, 2024, have 90 days.
In the future, companies that are created after January 1, 2025, will have 30 days to comply.
What are the penalties for not filing a BOI?
Failing to file may result in civil penalties of $500 for each day past the due date. Additionally, individuals may face criminal penalties of up to two years imprisonment and up to $10,000 in fines.
Beneficial Ownership Form
The BOI form and information (including a long list of FAQs) can be found at FinCEN’s Beneficial Ownership Information Reporting website.
Corporate Transparency Act Exemptions
In addition to sole proprietorships, general partnerships, joint ventures, and most trusts, there are 23 types of companies that are exempt from having to file a BOI Report under the new CTA law. They are:
- 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 producer
- 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
These exemptions may create further questions for some business owners. FinCEN’s Small Entity Compliance Guide explains the process and will help you determine if you qualify for exemption from this new requirement.
For Help With The Corporate Transparency Act 2024 And More…
…trust a firm that has been around for over 40 years.
We’ve been doing this for a long time, and we’ve seen a lot of changes over the years. And we’ve gotten good at adapting to them.
We get it. Government regulations can be counted on to change. One thing that never changes is our commitment to helping our clients navigate whatever comes their way.
As your trusted advisor, we want to ensure that you are aware of the reporting requirements and the penalties for non-compliance. While individuals can certainly file this information themselves, we strongly recommend that you consult with your attorney, as the rules of who can be considered a beneficial owner are wide-ranging. They can provide you with more detailed guidance on complying with the new law.
For more information on the Corporate Transparency Act (or whatever you need help with), schedule a call with one of our business experts today.
