The Corporate Transparency Act is Here. Are you ready?

On January 1, 2024, the Corporate Transparency Act (CTA) came into effect. It ushers in new reporting obligations for those with beneficial ownership interests in business entities.  The CTA affects groups like corporations and limited liability companies (LLCs). It requires them to report certain information to the Financial Crimes Enforcement Network (FinCEN)—or face serious financial penalties.

In this article, we’ll break down the key points of the CTA and what you need to do if you are affected.

The Purpose of the CTA

The CTA was passed as part of the Anti-Money Laundering Act of 2020. The goal is to prevent the use of anonymous entities for illicit activities, such as money laundering or financing terrorism. Many small entities, including LLCs and corporations, have traditionally had limited reporting obligations regarding their ownership structures. The CTA changes that by requiring companies to provide FinCEN with specific details about the individuals who own or control them.

Who Must Report?

The CTA applies to “reporting companies.” This includes domestic and foreign corporations, LLCs, and other similar entities created through filing with the Secretary of State of any U.S. state or tribal government. Although some exemptions exist, if your business is a smaller LLC or corporation with fewer than 25 full-time employees, you likely need to file a Beneficial Ownership Information (BOI) Report.

In these reports, you must disclose:

• Information about the “beneficial owners” of the company; and
• Information about the “company applicants,” meaning those who filed the creation paperwork with the Secretary of State

Who Is Considered a Beneficial Owner?

Under the CTA, a beneficial owner is defined as anyone who:

• Owns or controls at least 25% of the entity, or
• Exercises “substantial control” over the entity, which can include holding a significant decision-making role or having influence over major business activities.  For the purposes of the CTA, “substantial control” is defined broadly.

What Must Be Reported?

For each beneficial owner, the report must include:

• Full legal name
• Date of birth
• Current residential address
• Unique identification number from an official document (like a driver’s license or passport)
• An image of the official document on which they are relying to verify their identity

Where to File the BOI Report

You must file the BOI report electronically with FinCEN, a bureau of the U.S. Treasury.

To begin the filing process or to learn more about the BOI submission system, you can visit the FinCEN website.

Key Deadlines

• If your company was formed before January 1, 2024, you have until January 1, 2025, to file your first BOI report.
• For companies formed after January 1, 2024, initial BOI reports must be filed within 90 days of formation.
• If your company is created on or after January 1, 2025, you must submit the BOI report within 30 days.

Penalties for Non-Compliance

Failure to comply with the CTA can lead to serious penalties. If you knowingly fail to file or update your report as pertinent changes in ownership occur, you could face civil penalties of up to $500 per day.

In cases of willful non-compliance, authorities can impose criminal penalties, including fines and up to two years of imprisonment.

How Trusts Are Affected

Trusts are generally not considered “reporting companies” under the CTA. However, when a trust holds membership or ownership interests in a “reporting company,” the CTA “looks through” the trust to identify its “beneficial owners.” Those beneficial owners must then be disclosed. 

This includes:

• The Trustors
• The Trustees
• The Trust Protector 
• Any beneficiary with significant control over or access to trust assets
• Anyone who can withdraw or direct the disposition of trust assets

What Homeowners and Real Property Owners Should Know

If you hold title to real estate in a business entity like a corporation or LLC, the CTA’s reporting requirements apply to you as well. This means it’s important to assess whether or not your real estate holdings are held by entities subject to the Act.

Steps to Take Now

If your business is required to file under the CTA, you need to start preparing now. Here’s what you can do:

1. Review Your Entity Structure: Confirm whether your business is a “reporting company” under the CTA.
2. Identify Beneficial Owners: Determine who in your business qualifies as a beneficial owner.
3. Prepare Your BOI Report: Gather the required information about beneficial owners and company applicants.
4. Set a Compliance Plan: Establish a system for filing and updating your BOI reports.

How Clarity Legal Group Can Help

Navigating these new requirements can be daunting to some, but you don’t have to do it alone. At Clarity Legal Group, we can help you understand how the CTA applies to your business, identify beneficial owners, and prepare your BOI report. Our goal is to ensure your compliance while minimizing disruption to your business operations.

To learn more about how the Corporate Transparency Act may impact you or your business, schedule a consultation with Clarity Legal Group. Let us help you stay on track and avoid the penalties of non-compliance.