The Corporate Transparency Act (CTA) requires U.S. corporations, limited liability companies (LLCs), and other similar entities to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This blog will help your small business understand and comply with these requirements.

1. Understanding the Corporate Transparency Act

What is the Corporate Transparency Act?

The Corporate Transparency Act aims to combat money laundering, the financing of terrorism, and other illicit activities by increasing transparency in business ownership.

Who Must Comply?

• Corporations
• Limited Liability Companies (LLCs)
• Other similar entities created by filing with a secretary of state or similar office

The Corporate Transparency Act

Exemptions

Certain entities are exempt, such as, but not limited to:

• Large operating companies with more than 20 full-time employees, over $5 million in revenue, and a physical presence in the U.S.
• Government entities
• Certain regulated entities (e.g., banks, insurance companies)
• Public Utility
• Tax Exempt Entities

2. Identifying Beneficial Owners

A beneficial owner is any individual who:

• Exercises substantial control over the company.
• Owns or controls a minimum share of 25% of the company's equity.

3. Reporting Requirements

The following information must be provided in the filed report.

For the Company:

• Legal name
• Any trade names or DBA (Doing Business As) names
• Trademarks
• S. operational location
• State or jurisdiction of formation
• Employer Identification Number (EIN)

For Each Beneficial Owner:

• Full legal name
• Date of birth
• Residential or business street address
• Unique identifying number from an acceptable identification document (e.g., passport, driver's license)
• An image of the identification document

4. Filing Reports

Initial Report

New entities, established on or after January 1, 2024, must file a beneficial ownership report within 90 days of formation. Existing entities established before January 1, 2024 will have until January 1, 2025 to file their initial BOI report. Those businesses which will be created on or after January 1, 2025 must submit their BOI application within 30 days from their notification or public announcement of their formation.

Updates

Changes in beneficial ownership or the reported information, such as a name change or change in address, must be updated within 30 days of the change.

5. Penalties for Non-Compliance

Failure to comply with the CTA can result in civil penalties of up to $500 per day of non-compliance (up to $10,000!), criminal penalties, and imprisonment (up to two years!). It is important to note that subsequent events of failing to submit the required reports can lead to accrued aggregate penalties, leading to an excess of the previously mentioned $10,000.00 cap on fines.

6. Six Steps for Complying with the Corporate Transparency Act.

Step 1: Review and Understand the Requirements

Familiarize yourself with the CTA's requirements and exemptions.

Step 2: Identify Beneficial Owners

Determine who in your company qualifies as a beneficial owner based on the criteria.

Step 3: Collect Required Information

Gather the necessary information for your company and its beneficial owners.

Step 4: Prepare for Filing

Set up a secure system to store and manage the required information.

Step 5: File with FinCEN

Submit the beneficial ownership information through the appropriate FinCEN portal.

Step 6: Keep Records Up to Date

Regularly review and update the information to ensure ongoing compliance.

Complying with the Corporate Transparency Act

7. Maintaining Compliance

• Regular Reviews: Periodically review the ownership structure and ensure all reported information is current.
• Internal Policies: Establish internal policies for tracking changes in beneficial ownership and other relevant information.
• Training: Educate key personnel on the CTA requirements and the importance of compliance.

8. Seek Professional Legal Guidance

Consider consulting with a legal professional to ensure full compliance with the CTA. The Whipple Law Group can provide tailored advice and assist with the preparation and filing process. Compliance with the Corporate Transparency Act is necessary for the integrity of the U.S. financial system and for avoiding possibly significant penalties. By understanding the requirements and taking the necessary steps to report accurate beneficial ownership information, your small business can ensure it meets its legal obligations.