Governments worldwide are implementing regulations to combat illicit activities within the business sector. One such regulation in the United States is the Corporate Transparency Act (CTA).

Note: The Corporate Transparency Act was ruled unconstitutional by a federal district court in Alabama on Friday March 1, 2024. The court’s order limits the decision to apply only to the particular plaintiffs in that case. All others are well advised to comply with the terms of the act at this time.

What is the Corporate Transparency Act?

The Corporate Transparency Act was introduced in 2021 in hopes of combating money laundering, tax fraud, and financing for terrorism by capturing ownership information for specific U.S. businesses operating in or accessing the country’s market.

The primary objective of the CTA is to prevent individuals with malicious intent from hiding or benefiting from the ownership of U.S. entities to facilitate illegal operations. Businesses that meet the CTA’s criteria are required to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

Who is Considered a Beneficial Owner?

According to the CTA, an individual qualifies as a beneficial owner if they directly or indirectly hold a significant ownership stake in a company. This can include individuals who substantially influence the company’s decisions or operations, own at least 25% of the company’s shares, or have a similar level of control over the company’s equity.

Reporting Requirements

Under the Corporate Transparency Act, Reporting Company and Beneficial Owner information must be reported to the U.S. Department of Treasury’s FinCEN. The person signing documents as an incorporator of a corporation or organizer of a limited liability company must provide their full legal name, date of birth, business address, drivers license or passport number, and a copy of their drivers license or passport. The beneficial owner must provide their full legal name, date of birth, residence address, drivers license or passport number, and a copy of their drivers license or passport.

Filing Deadlines and Process

Reporting companies have specific deadlines when filing their initial BOI reports. For companies formed before January 1, 2024, the deadline is December 31, 2024. For companies formed on or after January 1, 2024 and before January 1, 2025, the deadline is 90 days of state filing. For companies formed after January 1, 2025, the deadline is within 30 days of state filing. Domestic reporting companies, including LLCs, corporations, and other entities formed through filing with a secretary of state, and foreign reporting companies registered to conduct business in the United States must submit their reports within the specified timeframe.

Updating BOI Reports

In addition to the initial filing, reporting companies must update their BOI reports when specific changes occur. These changes may include alterations to beneficial ownership information or operational changes within the company. Failure to update the reports on time may result in penalties for non-compliance.

Seeking Assistance

While companies can file their own BOI reports, seeking assistance from knowledgeable advisors, such as attorneys or accountants, is recommended. These professionals can ensure that the reports are completed accurately and comply with FinCEN’s standards. Additionally, they can guide the interpretation of the law and navigate any complexities that may arise.

Compliance with the Corporate Transparency Act

The Corporate Transparency Act represents a significant step towards enhancing transparency and accountability in the business sector. By requiring reporting companies to disclose ownership information, the CTA aims to combat illicit activities and safeguard national security and economic integrity.

Understanding the requirements of the CTA and ensuring compliance with its provisions is essential to avoid potential penalties and uphold ethical business practices. By staying informed and seeking guidance when needed, businesses can navigate the complexities of the Corporate Transparency Act and contribute to a more transparent and accountable enterprise environment.

The Corporate Transparency Act is an important piece of legislation promoting transparency and accountability in the business sector. By understanding its requirements and ensuring compliance, businesses can contribute to a more ethical and responsible business environment while avoiding potential penalties for non-compliance.

At Edward S. Clay, P.A. Law Offices, we specialize in guiding businesses to adapt to the complexities of the Corporate Transparency Act. Don’t hesitate any longer! Reach out to us today to learn more.