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What Business Owners Need to Know About the New Corporate Transparency Act
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The Corporate Transparency Act (CTA) has been in effect since January 2024. Business owners in the US need to report business details and beneficial owner information before the deadline. Otherwise, they might end up facing penalties.
In this article, we will discuss what this new Corporate Transparency Act (CTA) is all about. We will explain the need for it and what business owners need to do in order to be compliant.
What is the New CTA?
The Corporate Transparency Act (CTA) was enacted in 2021. Now, it has been in effect since January 2024.
Its goal is to make business dealings more transparent and combat financial crimes, including tax fraud, terror financing, money laundering, corruption, drug trafficking, etc. It ensures economic and national security.
It also creates a centralized database to prevent illegal operations. It is a secure and private database; however, federal, state, local, and other authorities may get records after a request.
It is necessary for businesses that meet the criteria to submit Beneficial Ownership Information (BOI) reports. The report includes business details and owner information.
From 1st January 2024, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has started accepting the BOI reports.
Which Businesses Must Comply with the CTA?
The business that files the BOI report is called the Reporting Company. It can be a:
- C Corporation
- S Corporation
- LLC
- Partnership
Both domestic and foreign companies must submit BOI reports within their deadlines.
CTA targets small businesses that have less than 20 employees and have an annual revenue under $5 million. However, sole proprietors do not need to comply with it or submit the reports.
Some companies are exempted from reporting. FinCEN has 23 types of entities that do not need to submit BOI reports.
Some of them are:
- Bank
- Credit union
- Governmental authority
- Securities reporting issuer
- Money services business
- Broker or dealer in securities
- Venture capital fund advisor
- Accounting firm
- Financial market utility
- Large operating company
- Insurance company
Further reading: Complete List of Exempted Entities
Who Can be the Beneficial Owner of a Company?
CTA requires reporting of the beneficial owners of the reporting company. That’s why it is necessary for businesses to look at the organizational and ownership structures to select the right beneficial owners.
An individual who owns a significant stake in the company and controls decisions and operations qualifies as the beneficial owner.
FinCEN has defined two criteria. Anyone who fits in any of them is considered a beneficial owner.
- The owner has at least 25% company’s shares
- The owner is the key decision maker and has substantial control over the reporting company.
In short, the owner may directly or indirectly own and control the reporting company and has a significant share in decision-making, appointments of high positions, etc.
The individual can be the immediate owner or cofounder of the company, or he could hold a major role or position, such as CFO, CMO, COO, president, etc.
It is necessary to seek legal advice to identify the right beneficial owners of the reporting company. If the business has a parent company in a different country, the selection of beneficial owners becomes trickier and requires experts’ opinions.
Information Needs to Be Reported
Reporting companies have to provide the details of the company and beneficial owners once. If there is any update or correction, they may report again. It is not an annual requirement.
Firstly, the report includes the basic information of the company:
- Business name
- Complete business address
- Jurisdiction of formation
- Tax ID
For each beneficial owner, the following pieces of information are mandatory:
- Name
- Date of birth
- Residential address
- Identifying number and issuer from the driver’s license, passport, or identification document issued by a State or local government.
- Image of the document is mandatory
If the company is registered after 1st January 2024, information on the company’s founders or company applicants is also required. The same information as beneficial owners is required from the applicants.
Deadlines and Penalties
Companies that are registered or created before 1st January 2024 to do business in the US can file their reports by 1st January 2025
Newly created or registered companies after 1st January 2024 have 90 days from their notice of effective registration to file their reports.
Businesses created or registered after 1st January 2024 will have 30 days to file BOI reports once they receive the notice that their registration is effective.
The changes in the ownership must be reported within 30 days. The updated BOI must be submitted if there are changes in the equity split, names after marital status, address, etc. Even if there are changes in the roles and shifting of substantial control, updating BOI is a must.
After submitting BOI reports, you’ll have 90 days to make corrections or if you forgot to submit key information or there are mistakes.
If you do not comply with the deadlines and willfully delay BOI report submissions, you can face penalties. You could be charged up to $500 per day after the deadline.
There are also penalties for providing false information and not updating the BOI report on time.
The penalties can go up to $10,000 as a fine and two years of imprisonment.
File Beneficial Ownership Information through An Expert
The CTA compliance is essential for the eligible businesses to prevent penalties. Businesses can fill out the BOI report on their own and submit it online. However, getting it done the right way is essential. There are nitty-gritties that attorneys and finance experts understand. You must ensure you comply with the CTA, report the right beneficial owners, and prevent penalties.
FCF Consulting Partners offers help in guiding businesses through the filing process of BOI reports. We understand the complicated internal structure, beneficial owners, equity issues, and other complications related to BOI reports. With our guidance you can ensure the accurate filing of the required data within the deadline to avoid penalties and other adverse consequences.
Book a 30-minute free session on filing BOI reports and discuss how to do it the right way according to your business.
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