Corporate Transparency Act Maintenance & Reporting Program

What Is the Corporate Transparency Act?

The Corporate Transparency Act, enacted in 2021, is a U.S. federal law requiring all corporations and limited liability companies to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).

Its objective is to prevent illicit activities like money laundering, terrorism financing, and other financial crimes by increasing transparency around business ownership. The law mandates businesses to disclose the name, address, date of birth, and government-issued identification number of all beneficial owners. Non-compliance can result in substantial penalties, including fines and imprisonment.

Which Businesses Are Affected by the CTA?

The Corporate Transparency Act (CTA) applies to all corporations, limited liability companies (LLCs), and similar entities formed under the laws of any U.S. state, or foreign entities registered to conduct business in the U.S. It requires these entities to disclose beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

Exemptions exist for certain entities including those that are already heavily regulated (banks, credit unions, etc.), publicly traded companies, and entities that have over 20 full-time employees, a physical office in the U.S., and gross receipts or sales exceeding $5 million. The CTA seeks to prevent anonymous shell companies from facilitating illicit activities.

How Do Businesses Prepare for the Corporate Transparency Act?

To comply with the Corporate Transparency Act (CTA), businesses must report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The details required include full legal names, residential or business addresses, dates of birth, and unique identification numbers from acceptable identification documents like a passport or driver’s license for each beneficial owner.

A beneficial owner is anyone who owns 25% or more of the entity or exercises substantial control over it. Businesses must also update FinCEN within a year of any change in beneficial ownership. Non-compliance can lead to significant fines and potential imprisonment.

How Does the CTA Affect Corporations?

The Corporate Transparency Act (CTA) has significant implications for corporations. Primarily, it adds an extra layer of regulatory compliance. Corporations are now required to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This includes information about any individual owning 25% or more of the company or exercising substantial control over it.

Furthermore, any changes in beneficial ownership must be reported within a year. Non-compliance can lead to hefty fines and possible imprisonment. On the positive side, the CTA is designed to help combat illicit activities like money laundering, improving overall corporate governance and financial transparency.

How Does the CTA Affect Limited Liability Companies?

Similar to corporations, Limited Liability Companies (LLCs) are significantly affected by the Corporate Transparency Act (CTA). LLCs must disclose their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This includes details of any individual who owns 25% or more of the LLC or exercises substantial control over the company.

Changes in beneficial ownership must be updated within one year. Failure to comply can result in substantial penalties, including fines and potential jail time. While this adds another layer of regulatory compliance, the CTA ultimately aims to enhance financial transparency and curb illicit activities like money laundering.

How Does the CTA Affect Startups?

The CTA impacts startups similarly to corporations and LLCs. Startups are required to report their beneficial ownership information, which includes details of any individual who owns 25% or more of the entity or exercises significant control, to the Financial Crimes Enforcement Network (FinCEN). They must also report changes in ownership within a year.

For startups, this added layer of compliance might seem burdensome, particularly in initial stages where ownership structures can change rapidly. However, it can also bring about increased transparency and accountability, which could be beneficial in attracting investment and building trust with stakeholders. Compliance is essential to avoid penalties.

What Happens If You Don’t Comply With the CTA?

Non-compliance with the Corporate Transparency Act (CTA) carries severe penalties. Entities that fail to report or provide false beneficial ownership information can face civil penalties up to $500 per day, up to a maximum of $10,000, and criminal fines up to $250,000. Furthermore, willful non-compliance can lead to imprisonment for up to two years. For organizations involved in other illegal activities, these penalties can increase to a fine of $1,000,000 and imprisonment for up to five years. Businesses should take the requirements of the CTA seriously to avoid legal and financial penalties.

Which Entities Are Exempt from the CTA?

The Corporate Transparency Act (CTA) imposes reporting requirements on a wide range of businesses in the United States, requiring them to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). However, not all businesses fall under these regulations. The CTA outlines several exemptions designed to avoid unnecessary duplication of regulatory efforts and focus on businesses that are more likely to be used for illicit activities such as money laundering and financing terrorism.

Businesses That Are Already Regulated

Entities that are already subject to federal regulation and report information similar to what the CTA requires are exempt. This includes financial institutions like banks and credit unions, investment companies, and registered public accounting firms. These businesses already undergo rigorous scrutiny, and their beneficial ownership information is typically already on record.

Publicly Traded Companies

Publicly traded companies are exempt from the CTA. The Securities and Exchange Commission (SEC) already regulates these companies and requires significant disclosure of ownership and financial information. Therefore, the CTA doesn’t impose additional reporting requirements on them.

H3: Dormant Companies

Entities that have been in existence for over a year, have not been engaged in active business or ownership changes, and are not indirectly owned by another entity are exempt. These dormant companies are less likely to be used for illicit activities that the CTA aims to prevent.

Large Operational Entities

Larger entities with more than 20 full-time employees in the United States, a physical office within the U.S., and gross receipts or sales exceeding $5 million as reported to the Internal Revenue Service are also exempt from the CTA. These businesses typically have a larger public presence and are less likely to facilitate illicit activities undetected.

Nonprofits & Charities

Nonprofit organizations and charities are exempt, as their ownership structure and the nature of their operations are different from the businesses targeted by the CTA. These organizations are generally subject to other transparency and disclosure rules.

H3: Entities Under Other Federal Jurisdiction

Businesses operating under certain federal functional regulators are exempt from the CTA. These include insurance companies, churches, and other entities that fall under specific federal jurisdictions, as these entities are already regulated and require significant disclosure of ownership information.

Government Entities

Entities that are majority-owned by a federal, state, or local government are exempt. This includes government agencies and state-owned enterprises, given that they are directly overseen and regulated by the government itself.

Certain Subsidiaries & Affiliates

Subsidiaries and entities controlled by a corporation that is exempt from reporting are also generally excluded. If the parent corporation is already exempt under the regulations, its subsidiaries usually benefit from the same exemption.

H3: Bankruptcy Entities

Entities in bankruptcy, whether due to insolvency proceedings or reorganization, are typically exempt. These entities are subject to court supervision and their financial information is already transparent to creditors and other stakeholders.

Hire a Corporate Transparency Act Attorney

Our Orlando business planning attorneys assist businesses of all sizes and industries with Corporate Transparency Act (CTA) compliance. We can help identify whether your business falls under the Act or is exempt. If you’re required to report, we’ll guide you in identifying beneficial owners according to the CTA’s definition and gathering the necessary information.

Our attorneys can work alongside your business to file accurate reports to FinCEN and ensure timely updates for any changes in beneficial ownership. We can also analyze your business’ current state and goals for the future to develop a corporate and business maintenance program to maximize growth, efficiency, and compliance.