Your Compliance is now mandatory, learn what new legal business requirements are part of the Corporate Transparency Act at Anderson Business Advisors.

Reporting is something that every business does, and a new age of reporting and compliance is starting on Jan. 1, 2024. With the implementation of the Corporate Transparency Act (CTA), certain types of entities will be required to file documentation with the Financial Crimes Enforcement Network (FinCEN). This new age of accountability is aimed at preventing individuals or companies from hiding or benefiting from illicit financial activities. Keep reading to learn more about how this act revolutionizes financial reporting and accountability.

The Corporate Transparency Act Affects you. Learn if you have to file by taking this easy 6 step quiz. 

Key Takeaways

  • CTA reporting begins on Jan. 1, 2024, with the window for initial reports ending Jan. 1, 2025.
  • The CTA aims to eliminate illegal financial activities occurring under the purview of shell companies or other suspicious organizations.
  • Reporting includes outlining a company’s beneficial owners and decision-makers, which offers a previously unseen level of corporate transparency.
  • Fines ranging from $500 a day up to $250,000, along with jail time ranging from two to five years, aim to hold companies accountable until they are in compliance with the new act.

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What is the Corporate Transparency Act?

In essence, the CTA is a new regulation that will hold certain types of corporations, limited liability companies (LLCs), and other business owners accountable for their financial activities via a beneficial owner information report. The main goal of this act is to eliminate illicit financial activities facilitated by shell companies that help keep the actual organization doing the activities hidden from public records. This unclear structure led to money laundering, fraud, and tax evasion, which hurt the rest of the business world. The act defines beneficial owners as:

  • A natural person who exercises substantial control over an LLC or corporation.
  • Someone who owns at least 25% of the equity interests of a company.
  • An individual or entity that receives substantial economic benefits from a company’s assets. 

How This Act Can Bring About a New Era of Compliance

With the enactment of the CTA comes a whole new era of financial compliance. Companies will have to detail, outline, and verify their beneficial owners rather than using placeholder information from a shell company for a different organization. Here’s how the CTA enhances corporate transparency and brings about a new level of accountability:

Transparency

The reporting process aids transparency by listing the exact beneficial owners and top-tier decision-makers in your company. The FinCEN requirements are detailed and specific, requiring individual taxpayer information, employer identification numbers, and other identifying numbers such as a driver’s license or passport number. This helps FinCEN trace these organizations back to real entities and enables them to quickly pinpoint illicit shell companies or other suspicious organizations. Here’s a more complete breakdown of what’s required in the report:

  • Full legal name of the reporting company.
  • Your company’s trade name.
  • Your company’s physical address.
  • Business formation jurisdiction.
  • Taxpayer or employer identification number.
  • Beneficial owner’s and applicant’s full legal name.
  • Applicant or owner’s date of birth.
  • Business or home address.
  • Government-issued identifying numbers.
  • Image of the document containing identifying numbers.

Accountability

The CTA’s built-in reporting requirements emphasize accountability. Companies or organizations that fail to report properly face fines of up to $500 per day, which can add up quickly.

Criminal penalties can result in up to $10,000 in fines or up to two years in prison. Some cases may even warrant both penalties. Unauthorized disclosure also carries its own penalty of up to $250,000 in fines or up to five years in prison (or both). Disclosure penalties can apply to both government employees and third-party recipients. The accountability requirements and stiff penalties integrated into the CTA can result in more transparent reporting.

False or fraudulent information also has its own penalty. Providing inaccurate ultimate beneficial owner information carries a penalty of up to $10,000 in fines or up to two years of jail time.

What Does This Mean for Businesses?

Nearly 32 million impacted businesses will need to collect information and be ready to file documentation from Jan. 1, 2024, until Jan. 1, 2025. Since this is a major reporting period beyond the CTA reporting requirement—falling near the fourth quarter 2023 tax payment due date and end-of-year reporting deadlines for many organizations—preparation is key.

Companies that form or register their business on or after Jan. 1, 2024, will have up to 30 calendar days to file their reports. These 30 days start once the company receives actual or public notice that their registration or creation has become effective.

Taking a few extra days to ensure everything is organized and that you have all the required documentation needed for this report can help your company remain in compliance with the CTA and prevent any unnecessary penalties. This means collecting your beneficial owner’s full legal name, date of birth, and residential or business address, along with a government-issued identifying number.

Why is the CTA Required?

Prior to the enactment of the CTA, there was no real reporting for non-exempt privately owned companies, which allowed shell companies to operate more freely. The CTA revolutionizes reporting for these organizations, making it harder for suspicious activities to go unnoticed and unpunished.

Corporate transparency is entering a new age of compliance with the implementation of the CTA. While filing and ensuring compliance with this act may seem tedious for some small business owners and other entities, the overarching goal is one that will benefit business owners, companies, and individuals alike.

Having someone to help you with each step of reporting can ensure you get everything filed correctly the first time. Consider working with a financial advisor from Anderson Advisors who has the skills, knowledge, and experience to effectively guide you through the filing process. This enables you to get tailored advice for your unique business and remain in compliance with the CTA as filing requirements go into effect at the start of 2024.

 

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