Key Takeaways:

• The Corporate Transparency Act (CTA) requires business entities to disclose information about the people who own or control the company.
• Corporations, limited liability companies, and similar entities must file a beneficial ownership information report with the federal government.
• The law goes into effect on Jan. 1, 2024, and existing companies will have one year to submit this report.
• Failure to comply with the CTA will result in serious civil or criminal penalties.
• You can obtain more information about the CTA requirements and how to comply with it by speaking with a business advisor – take our quiz and see if you are required.

What Is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a federal law that requires many business entities to disclose information about the people who own or control them. As part of the law, small businesses will need to file a beneficial ownership information (BOI) report to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Department of the Treasury. Congress passed the CTA in 2021, and it will come into effect on Jan. 1, 2024.

What Is the Purpose of the Corporate Transparency Act?

Essentially, the law gives the government more regulatory power to prevent and combat financial crimes. For years, criminals have used shell companies to hide their illegal activities, such as money laundering and tax evasion. Drug cartels, trafficking rings, and corrupt individuals have all used anonymous structures to operate illegally. This law aims to stop these bad actors from hiding behind anonymous companies to engage in illegal activities.

What Entities Need to File a BOI Report?

The law refers to companies that must file BOI reports as reporting companies. A reporting company is an entity that files a report through a state office, such as the secretary of state. Reporting companies can include corporations, limited liability companies (LLCs), and limited liability partnerships (LLPs).

If you didn’t create an entity by filing a document through the state, then your company is not a reporting entity under the CTA. For example, most trusts don’t fall within the scope of the CTA unless they hold ownership interests in a reporting company.

Video: Corporate Transparency Act: What It Means For Business Owners!

Which Entities Are Exempt From the CTA?

Twenty-three entities are exempt from filing BOI reports under the CTA. In many cases, entities are exempt because they’re already regulated at the state or federal level. The following are examples of exempt entities:

• Banks
• Credit unions
• Money services businesses
• Accounting firms
• Insurance companies
• Tax-exempt entities
• Large operating companies (over 20 full-time employees) that reported $5 million of revenue on the previous year’s tax return

Who Is a Beneficial Owner?

The CTA requires non-exempt entities to submit information about their beneficial owners. Under the law, a beneficial owner is someone who meets one of the following two criteria:

• Has substantial control over a reporting company
• Owns or controls 25 percent or more of the company

Let’s take a closer look at the term “substantial control.” According to the law, an individual can have substantial control in a few different ways. They can be a senior officer of the company, such as a president or chief financial officer. They can be someone with the ability to appoint or remove a majority of the board of directors. A beneficial owner can also be anyone who makes important decisions relating to the company’s business, finances, or structure.

Under the second part of the definition, a beneficial owner owns at least 25 percent of a company’s ownership interests. These interests might include equity, stock, voting rights, capital or profit instruments, convertible instruments, options, privileges, or other similar mechanism of establishing ownership.

What Information Do You Need To Report?

Now that you know what entities need to report and who qualifies as beneficial owners, you should know what specific information to file with FinCEN. You will need to submit information about the company, its beneficial owners, and company applicants. A company applicant only applies to entities formed after Jan. 1, 2024. It includes anyone who files a document to create a reporting company or oversees this filing.

Here’s a checklist of information you need to submit for the company, its beneficial owners, and company applicants, if applicable.

Reporting Company

As part of the CTA, you must submit the following information about the reporting company to FinCEN:

• Full legal name
• Any trade name or “doing business as” (d/b/a) name
• Current address of the company’s primary place of business
• Jurisdiction of formation
• Taxpayer identification number (TIN)

Beneficial Owners and Company Applicants

The information you need to submit for beneficial owners and company applicants (if registering an entity after Jan. 1) is the same. You must submit the following information for each beneficial owner and applicant:

• Full legal name
• Date of birth
• Current address
• Unique identifying number from a U.S. passport, state driver’s license, or other government-issued identification document
• An image or copy of the identification document

CTA Deadlines To Remember

The CTA takes effect on Jan. 1, 2024. At this point, reporting companies can begin to submit their BOI reports to FinCEN. If you own an existing company created before Jan. 1, 2024, you have one full year to file the initial BOI report. That means your deadline to report is Jan. 1, 2025.

If you create a new company after Jan. 1, 2024, you will need to submit a BOI report within 30 days of the company’s formation. The 30-day timeline begins when you receive actual or public notice about the company’s formation.

After you file an initial BOI report, you must submit updated reports whenever there’s a change in information about the reporting company or its beneficial owners. After the change occurs, you have 30 days to submit an updated report. The following are examples of changes that would require you to submit an updated report:

• A change in beneficial owners, such as a new CEO
• The death of a beneficial owner
• Changes to a beneficial owner’s name, address, or unique identifying number
• A sale that changes who owns 25 percent or more of the company

What Are the Penalties for Failing to Comply With the CTA?

If you fail to submit a BOI report or your report contains false information, you will be subject to civil and criminal penalties. These include a fine of up to $10,000 and a two-year prison sentence. You may be liable for noncompliance if you cause the reporting failure or if you’re a senior officer at the company at the time of the violation.

Who Can Access the BOI Report?

You might have concerns about the security of the information you provide to FinCEN. Under the law, this information will not be publicly available. It will be shared with government agencies only in certain circumstances related to national security, intelligence, and law enforcement. Some financial institutions with anti-money laundering obligations will also have access to the information, but only with the company’s consent.

How Can Small Businesses Prepare for the CTA?

If you own a small business, you can take steps now to prepare for the CTA, even though it doesn’t go into effect until January. First, determine whether your company must submit a BOI report under the law or if it’s an exempt entity.

If the law requires you to comply, review your corporate structure and determine all beneficial owners of the company. Then, gather the information you need to submit for each beneficial owner. You may also consider taking additional steps, such as creating an internal compliance program or amending your operating agreement to mandate compliance with the CTA.

Get Ready for the CTA With Anderson Advisors

Don’t wait until Jan. 1 to start preparing for the new Corporate Transparency Act. Determine who your company’s beneficial owners are and what information you’ll need to submit. If you need help to understand the CTA and its requirements, speak with a trusted advisor at Anderson Advisors. We understand the law fully and can provide guidance on how to ensure you comply with the CTA once it takes effect.