The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act in 2021, introduces significant compliance requirements for businesses across the United States. As of January 1, 2024, corporations, limited liability companies (LLCs), and other similar entities will be required to report key information to the Financial Crimes Enforcement Network (FinCEN). This legal blog will outline the essentials of the CTA and explain how business owners should prepare to meet these new obligations.
What is the Corporate Transparency Act?
The CTA is a federal law aimed at combating illicit activities such as money laundering, terrorism financing, and tax evasion by increasing transparency in business ownership. Under this Act, businesses must disclose information about their “beneficial owners,” or individuals who have substantial control over the entity or own at least 25% of it.
This new reporting requirement is intended to provide law enforcement with critical information to identify and track criminal activities involving shell companies and other anonymous business structures.
Who is Required to Report?
The CTA applies to a wide range of business entities, including:
- Corporations
- Limited Liability Companies (LLCs)
- Other entities created by filing with a state or tribal authority
However, certain entities are exempt, including publicly traded companies, financial institutions, and large operating companies that meet specific thresholds (e.g., over 20 employees, $5 million in gross revenue, and a physical presence in the U.S.).
What Information Must Be Reported?
Under the CTA, businesses must report the following information to FinCEN:
1. Name of the Business Entity
2. Address of the Business
3. Information about Beneficial Owners, including:
- Full legal name
- Date of birth
- Residential or business address
- A unique identifying number from a government-issued document (e.g., passport or driver’s license)
Businesses formed after January 1, 2024, must submit this information at the time of formation. Existing entities have until January 1, 2025, to comply.
Beneficial Owners and Reporting Obligations
A beneficial owner is generally defined as an individual who:
- Owns at least 25% of the entity, directly or indirectly; or
- Exercises substantial control over the entity’s operations.
Reporting requirements aim to prevent the use of anonymous shell companies for illegal activities by requiring that actual human owners be identified and made accountable.
How to Comply with the Corporate Transparency Act
The CTA requires business owners to submit beneficial ownership information electronically to FinCEN. This process will likely involve:
- Gathering Accurate Information: Ensure that your company collects and maintains up-to-date information about all beneficial owners.
- Filing with FinCEN: Use the online filing system that FinCEN will provide to submit the required information in a timely manner.
- Staying Updated: Businesses must also report any changes to the beneficial ownership within 30 days of the change.
Failure to comply with these requirements can result in significant penalties, including fines of up to $10,000 and possible imprisonment for those who willfully provide false information or fail to report.
What are the Penalties for Non-Compliance?
Non-compliance with the CTA can result in severe civil and criminal penalties. Failing to report beneficial ownership information, submitting false information, or failing to update previously submitted details can lead to fines up to $10,000 and imprisonment for up to two years.
The CTA introduces a serious responsibility for business owners, particularly small and medium-sized businesses, to ensure that they remain compliant and avoid costly penalties.
How Schwartsman Law Group Can Assist
The Corporate Transparency Act is a complex regulation with broad implications for business owners across New York and beyond. It is crucial for business owners to understand their reporting obligations and avoid the severe penalties for non-compliance.
At Schwartsman Law Group, our experienced attorneys can help guide you through the nuances of the CTA. Whether you’re starting a new business or ensuring that your current business complies with the new requirements, we can provide the legal expertise necessary to protect you from potential liabilities.
Contact us today to ensure you are prepared for the upcoming CTA deadlines and maintain compliance with this important federal law.
