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The Corporate Transparency Act (CTA)
The Corporate Transparency Act (CTA), effective January 1, 2024, introduces critical changes to how many U.S. business entities report ownership information.
The CTA aims to combat financial crimes like money laundering and fraud by requiring certain businesses to disclose ownership details to the Financial Crimes Enforcement Network (FinCEN). It primarily targets smaller, privately held entities.
Who Needs to Report?
The CTA applies to most LLCs, corporations (C and S), limited partnerships (LPs), and similar entities, especially those that:
Have fewer than 20 full-time employees.
Earn less than $5 million in annual revenue.
Are not heavily regulated by other federal or state agencies.
Entities formed after January 1, 2024, must file a Beneficial Ownership Information (BOI) report within 90 days. Existing entities have until December 31, 2024, to submit their initial report.
Who is a Beneficial Owner?
A beneficial owner includes individuals who:
Own 25% or more of the entity.
Exercise substantial control over the entity, such as making key decisions or influencing operations.
Exemptions
Entities exempt from reporting include:
Large operating companies with 20+ employees and $5+ million in revenue.
Publicly traded companies and certain financial institutions.
Required Information
BOI reports must include the following:
Entity Information:
Legal name, address, and jurisdiction.
Beneficial Owners’ Information:
Full name, date of birth, residential address, and a government-issued ID.
Challenges for Trust-Based Entities
Complex trust structures may trigger reporting requirements for:
Trustees, trust protectors, or those with financial control over the trust.
Individuals holding substitute powers or other specialized roles.
Careful analysis is essential to identify all individuals who meet the beneficial owner criteria.
Steps to Achieve Compliance
Identify Beneficial Owners:
Review ownership structures and roles to determine who qualifies under the CTA.
Gather Required Documents:
Compile personal and entity information, including valid ID details.
Submit the BOI Report:
Use FinCEN’s online reporting portal to submit your report.
Monitor Updates:
Report any changes within 30 days to stay compliant.
Seek Expert Help:
Consult with legal or compliance professionals for complex trusts or multi-entity ownership structures.
Consequences of Non-Compliance
Failing to file accurate BOI reports can result in civil penalties of up to $500 per day and criminal penalties, including fines of up to $10,000 and imprisonment for up to two years for willful violations.
Visual Summary
Timeline:
Formed before 2024: File by December 31, 2024.
Formed after January 2024: File within 90 days.
Key Roles: Identify owners with 25%+ ownership or substantial control.
Exempt Entities: Publicly traded companies and large operating companies.
By taking proactive steps to understand and comply with the CTA, businesses can avoid penalties and contribute to greater transparency in the U.S. economy. For more details, visit FinCEN’s CTA Resources.
References:
FinCEN. (2024). Corporate Transparency Act Overview. Retrieved from https://www.fincen.gov
Nixon Peabody LLP. (2023). Corporate Transparency Act: Key Requirements and Compliance Steps. Retrieved from https://www.nixonpeabody.com
American Bar Association. (2024). Understanding the Corporate Transparency Act (CTA). Retrieved from https://www.americanbar.org
Forbes. (2023). Act Before Year End: Corporate Transparency Act is Coming! Retrieved from https://www.forbes.com
Steve Leimberg's Business Entities Newsletter. (2024). Corporate Transparency Act: Implications for Estate Planning. Archive Messages #280, #282, #283, and #288. Retrieved from https://www.leimbergservices.com