The Corporate Transparency Act: A New Era of Business Reporting

Posted in ,

The Corporate Transparency Act (CTA), enacted by Congress on January 1, 2021, as part of the National Defense Authorization Act, marks a significant shift in the landscape of business reporting in the United States. This legislation, aimed at preventing and combating money laundering, terrorist financing, corruption, and tax fraud, introduces beneficial ownership reporting requirements for corporations, limited liability companies, and similar entities formed or registered to do business in the U.S.

Who is Affected?
The CTA primarily affects active corporations, LLCs, and other businesses formed by filing a document with a Secretary of State’s office in the United States. However, certain entities are exempt from reporting, including publicly traded companies, banks and other financial institutions, tax-exempt nonprofits, public utilities, and some large businesses. These entities are already subject to regulatory requirements.

Reporting Requirements
Under the CTA, reporting companies are required to submit beneficial ownership reports to the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury. A Beneficial Owner is defined as any individual who either exercises substantial control over a company or owns or controls at least 25% of the ownership interest. If a business entity owns or controls at least 25% of a reporting company, then its Beneficial Owner(s) must also be reported.

In addition to Beneficial Owners, Company Applicants must also be reported. These are individuals who, after January 1, 2024, directly submitted the formation or registration document for a company, or were primarily responsible for that submission. There may be up to two Company Applicants.

What Information is Reported?
The information to be reported includes the company’s legal name, current principal place of business street address in the U.S., any assumed business name (DBA) used by the company, and the taxpayer identification number (TIN or EIN). For each Beneficial Owner and Company Applicant, the name, birthdate, residential street address, and an identifying number with an image of an acceptable ID (e.g., driver’s license or passport) must be reported. There is no fee for this report, and it is not an annual requirement. Only updates and corrections are necessary.

When to Report?
Companies created or registered prior to January 1, 2024, have until January 1, 2025, to report. Companies created in 2024 must report within 90 days. Failure to report is punishable with a civil penalty up to $500 per day.

The CTA represents a significant step towards greater transparency in the U.S. business landscape. By requiring businesses to disclose beneficial ownership information, the Act aims to prevent illicit activities such as money laundering and terrorist financing.

Posted in ,

Leave a Comment