Reporting Requirement Due on or Before 12/31/2024
In January 2021, the U.S. government passed the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act (NDAA) for fiscal year 2021. This landmark piece of legislation marks a significant step toward greater transparency in the U.S. business landscape. The CTA seeks to strengthen efforts to combat money laundering, tax evasion, terrorist financing, and other illicit activities by requiring companies to disclose their beneficial owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). If your corporation has not yet filed, go to Beneficial Ownership Information Report Filing webpage and do so on or before December 31, 2024 or you will be subject to penalties up to $591 for each day past the deadline that you have not filed.
What is the Corporate Transparency Act?
The CTA requires most U.S. corporations, limited liability companies (LLCs), and similar entities to report information about their “beneficial owners” to FinCEN. A “beneficial owner” is anyone who, directly or indirectly, owns or controls at least 25% of the company or exercises substantial control over it. This includes individuals who may not appear in public records but who have a controlling influence over the business.
The CTA aims to eliminate the use of anonymous shell companies for illegal activities, which has been a significant concern for authorities. By bringing more accountability to business ownership, it is hoped that the U.S. will improve its ability to identify criminal activity such as money laundering, tax fraud, and terrorism financing.
Who is Affected by the CTA?
The CTA applies to most corporations, limited liability companies (LLCs), and similar entities created or registered to do business in the United States. However, there are notable exemptions. Certain entities, such as large operating companies with more than 20 full-time employees, more than $5 million in annual revenue, or a physical office in the U.S., are exempt from reporting.
Small businesses and startups, particularly those in industries with a higher risk of financial crime, will be impacted the most. This includes many LLCs, which have long been a popular vehicle for those seeking anonymity. It’s essential for these companies to be aware of the new compliance requirements, which come with both legal and financial responsibilities.
Key Reporting Requirements
Starting in 2024, affected entities must file a report with FinCEN containing the following information for each beneficial owner:
- Full legal name
- Date of birth
- Current residential or business address
- Unique identification number (such as a passport number, driver’s license number, or similar document)
Entities must update their beneficial ownership information within 30 days of any change. This ensures that FinCEN maintains accurate and up-to-date records.
Why the Corporate Transparency Act Matters
The Corporate Transparency Act is designed to improve the U.S.’s ability to track financial crimes and prevent abuse of legal entities, particularly by foreign criminals or corrupt individuals. This increased transparency aims to make it harder for bad actors to hide illicit activity behind complex corporate structures. By disclosing who truly owns or controls a company, the CTA can help authorities detect and deter illegal activities like money laundering and tax evasion.
Additionally, the CTA aligns the U.S. with international standards for corporate transparency, making it more difficult for illicit capital to flow freely across borders. This global shift toward greater transparency aims to foster a more secure and accountable financial system.
What Businesses Need to Do Now
Business owners should begin preparing for the compliance requirements under the CTA, which will go into effect in 2024. This includes:
- Identifying all beneficial owners: Companies need to identify individuals who own or control at least 25% of their business.
- Gathering personal information: Beneficial owners must provide personal data, such as birth dates and identification numbers, which must be submitted to FinCEN.
- Ensuring accuracy and updating: Companies must update FinCEN if there are any changes in ownership or control, so it’s important to have a process in place to track these shifts.
Failure to comply with the CTA can result in significant penalties, including fines of up to $500 per day for each violation and potential criminal charges for willful noncompliance.
Looking Ahead
The Corporate Transparency Act represents a fundamental shift in how the U.S. handles corporate ownership transparency. While it may seem burdensome to some business owners, the long-term benefits of reducing financial crime and enhancing U.S. credibility in global markets are significant. Businesses that understand and adhere to the new requirements will be better positioned for success in a more transparent and secure marketplace.
For business owners, now is the time to start preparing for these changes. By doing so, companies will not only comply with the new regulations but will also contribute to a cleaner, more accountable business environment in the U.S.
For more detailed guidance on how to comply with the CTA, it is advisable to consult legal experts or compliance specialists who can provide tailored advice based on your specific business structure and operations.
