Corporate Transparency Act: Key Points and Compliance

08.30.2024

Author:  Attorney Eric S. Johnson

The Corporate Transparency Act (“CTA”) was enacted on January 1, 2021. Its purpose is to curb illicit activities such as money laundering, terrorism financing, and other financial crimes. Specifically, the CTA seeks to close the loopholes that allow anonymous shell companies to conceal their true owners. The CTA is designed to help law enforcement agencies and regulatory bodies track and prevent financial crimes more effectively by requiring legal entities to disclose their beneficial owners. This article provides a general overview of the CTA, including its requirements, compliance deadlines, and the penalties for non-compliance.

Key Requirements

The CTA imposes several requirements on legal entities, primarily focusing on the disclosure of beneficial ownership information. Here are the key requirements:

  1. Which Legal Entities Need to File

The CTA applies to a wide range of entities, including corporations, limited liability companies (LLCs), and other similar entities created by filing a document with a secretary of state or similar office. However, there are certain exemptions, such as:

  • Publicly traded companies
  • Non-profit organizations
  • Certain regulated entities (e.g., banks, credit unions)

Each legal entity will need to provide its full legal name, address, tax ID number, and information regarding the “company applicant” – the person who applied for the creation of the legal entity.

  1. What Information Must Beneficial Owners Disclose

A beneficial owner is an individual who, directly or indirectly, owns or controls 25% or more of the equity interests of a company or exercises substantial control over the company.

Each beneficial owner must provide the following information:

  • The full legal name of the beneficial owner
  • Date of birth
  • Current residential address
  • A unique identifying number from an acceptable identification document (e.g., passport, driver’s license)
  1. Updates and Changes

Legal entities are required to update their beneficial ownership information within 30 days of any change.

  1. Compliance Deadlines

The deadlines for compliance are:

  • Entities formed prior to January 1, 2024, must file their initial beneficial ownership report with FinCEN by January 1, 2025. FinCEN, or the Financial Crimes Enforcement Network, is a government bureau under the US Department of the Treasury charged with the duty of receiving the reports described herein.
  • Entities formed on or after January 1, 2024, and before January 1, 2025, must file their initial report within 90 days of their creation.
  • Entities formed on or after January 1, 2025, must file their initial report within 30 days of their creation.
  1. Penalties for Non-Compliance

Failure to comply with the Corporate Transparency Act can trigger significant penalties. The penalties for non-compliance include:

  1. Civil Penalties

Companies that fail to report beneficial ownership information or provide false information can face civil penalties of up to $500 per day until the violation is corrected.

  1. Criminal Penalties

In more severe cases, individuals who willfully provide false information or fail to report beneficial ownership information can face criminal penalties, including fines of up to $10,000 and imprisonment for up to two years.

Conclusion:

It is crucial for the beneficial owners of legal entities to understand the requirements, compliance deadlines, and penalties associated with the CTA. The CTA is far too nuanced to exhaustively cover in a single article. It is essential for entities to stay informed and seek legal advice if needed to comply with the CTA.

For further information or assistance with compliance, please contact our law firm. Our experienced team is ready to help you understand and meet the requirements of the Corporate Transparency Act.