The Corporate Transparency Act (“CTA”), which was signed into law on January 1, 2021, will become effective on January 1, 2024. The CTA requires “reporting companies” to submit certain information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury. A “reporting company” includes corporations, limited liability companies (LLCs), homeowners associations, and other similar entities.
The primary goal of the CTA is to combat money laundering, terrorism financing, and other financial crimes by enhancing transparency in corporate ownership. Information provided to FinCEN is not public. Information obtained through CTA reporting will generally only be disclosed to federal and state law enforcement agencies, or to financial institutions with your consent, in connection with their “know-your-customer” obligations.
To ensure compliance with the Corporate Transparency Act, you should take the following steps:
1. Identify Beneficial Owners: It’s crucial to identify and document the beneficial owners of your business. Beneficial owners are individuals who directly or indirectly own or control 25% or more of the ownership interests, voting rights, or other similar control over the company.
2. Gather Required Information: Collect and verify the necessary information for each beneficial owner, which includes their full legal name, date of birth, residential address, and a unique identifying number, such as a Driver’s License Number, Social Security Number, or an Individual Taxpayer Identification Number.
3. Submit the Report: Submit a report to FinCEN at fincen.gov. Existing reporting companies are required to submit the beneficial ownership information to FinCEN on or before January 1, 2025. If your business is newly formed, you must submit this information upon formation.
4. Maintain Records: Keep records of the beneficial ownership information for a period of five years, as these records may be requested by regulatory authorities.
5. Update the Report: Be sure to file updated reports with FinCEN any time there is a change in company ownership or personal information of existing owners (such as when an existing owner moves to a new address).
Failing to adhere to the CTA’s requirements can lead to civil and criminal penalties.
Civil penalties include a daily $500 fine for a continuing violation, and criminal penalties include up to two years’ imprisonment. Therefore, it is very important that you consult with an attorney to ensure accurate and timely compliance with the Corporate Transparency Act.
As your trusted legal advisors, we want to assist you in navigating these new regulatory obligations effectively. Our firm offers Business Entity Record Maintenance (“BERM”) services designed to help you comply with these new reporting requirements. If you are interested in learning more about our BERM plans or have other questions about your obligations under the CTA, please contact one of our experienced business attorneys today.