In today’s globalized economy, transparency and accountability in business have become essential. The U.S. government recognized this need when it passed the Corporate Transparency Act (CTA), a landmark piece of legislation aimed at enhancing transparency in business ownership. This act requires businesses to provide beneficial ownership information to the federal government, with the primary goal of preventing illicit financial activities such as money laundering, fraud, and tax evasion.

Beginning on January 1, 2024, many companies in the United States will have to report information about their beneficial owners, i.e., the individuals who ultimately own or control the company. They will have to report the information to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury.

In this blog post, we will explore what business owners need to know about the Corporate Transparency Act, the required reporting and how to prepare for its implementation.

What is the Corporate Transparency Act?

The Corporate Transparency Act, signed into law in 2021, is a significant shift in U.S. business regulations. Under this act, certain business entities are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Beneficial owners are individuals who directly or indirectly control or profit from a business entity, even if they are not publicly listed as the owner.

What Business Owners Need to Know

  • Applicable Entities: The CTA applies to various business entities, including corporations, limited liability companies (LLCs), and other similar structures that do business in the United States. However, certain exempt entities like publicly traded companies and well-regulated financial institutions are not subject to the reporting requirements. Reporting companies will need to register with FinCEN. You can do this online through the FinCEN’s website. It can be found here: https://www.fincen.gov/
  • Reporting Requirements: Business owners must disclose information about each beneficial owner, including their name, date of birth, address, and an identification number, such as a driver’s license or passport. If an individual provides their four pieces of information to FinCEN directly, the individual may obtain a “FinCEN identifier,” which can then be provided to FinCEN on a Beneficial Owners Information (BOI) report in lieu of the required information about the individual.
    • Deadlines and Enforcement: Business owners need to be aware of the reporting deadlines and should ensure timely compliance. The CTA carries civil and criminal penalties for non-compliance, so it’s crucial to be prepared:
      • Reporting companies created or registered before January 1, 2024, would have until January 1, 2025, to file their initial BOI reports with FinCEN.
      • Reporting companies created or registered January 1, 2024 through December 31, 2024 have 90 days to file their initial BOI reports.
      • Entities created or registered on or after January 1, 2025, would have 30 days to file their initial BOI reports.
  • Be Aware of Scams. FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages or click on any links or scan any QR codes within them.

How to Prepare for the Corporate Transparency Act

  • Identify Beneficial Owners: Business owners must determine who qualifies as a beneficial owner according to the CTA. This may involve reviewing the ownership structure and identifying individuals who have substantial control of or financial interest in the company. Beneficial owners are individuals who directly or indirectly own 25% or more of the ownership interests in the reporting company. To learn more about reporting, please visit: https://www.fincen.gov/boi
  • Gather Necessary Information: Reporting companies must submit a report to FinCEN that includes the beneficial ownership information for each applicable individual. Collect the required information for each beneficial owner. This typically includes their full legal name, date of birth, residential address, and Social Security number or other identifying information. Ensure this information is accurate and up to date. It is recommended that you appoint or designate a reporting company representative. This individual within your organization will be responsible for submitting the required reports to FinCEN.
  • Consult Legal Counsel: Seek legal advice to ensure your business complies with the CTA. An attorney experienced in corporate law and compliance can provide guidance on the reporting process and potential exemptions.
  • Develop an Internal Compliance Process: Establish an internal compliance process to monitor and maintain beneficial ownership information. This process should include regular updates and potential changes in ownership structure.

The Corporate Transparency Act is a significant step toward greater transparency and accountability in the business world. While it may require extra effort and resources from business owners, compliance with the CTA is essential to avoid potential penalties and legal complications.

By understanding the reporting requirements, identifying beneficial owners, and seeking legal counsel, business owners can prepare for a smoother transition into the new era of corporate transparency. Ultimately, the CTA aims to create a more transparent and honest business environment, which benefits both businesses and the broader economy. The estimated number of reports to be filed is somewhere around 35 million, so don’t wait until the end of year to get started.

How Can KatzAbosch Help?

Our professionals will continue to monitor this matter and keep up to date with any guidance or regulations issued by FinCEN or the Treasury Department regarding CTA compliance. We will make it our priority to keep our clients and the community informed of the deadlines and any changes that may come into effect. Our firm highly recommends working with legal professionals who are knowledgeable about the CTA to ensure a smooth transition for organizations with reporting requirements.

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