Corporate Transparency Act

United States business regulations are ever-evolving, and the Corporate Transparency Act (CTA) marks a significant shift in the requirements for small and medium-sized businesses. The CTA aims to enhance transparency in business ownership structures to combat illicit activities such as money laundering, tax fraud, and terrorism financing.

This legislation amends the Bank Secrecy Act. It was adopted by Congress in December 2020, enacted in 2021, and became effective January 1, 2024. Yet many organizations remain unaware that new requirements have gone into effect, or they are not confident about how to file. If you own a small or medium-sized business, it’s crucial to understand the Corporate Transparency Act to ensure compliance and avoid penalties.

What is the Corporate Transparency Act?

The CTA requires certain US businesses to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of Treasury. This move eliminates corporate anonymity, with the intent to prevent individuals from using US entities for illegal activities by hiding behind anonymous ownership.

The Corporate Transparency Act applies to both domestic and foreign companies operating within the United States and mainly targets smaller, privately held business entities like LLCs and corporations. Publicly traded companies, financial services providers, and some large entities are exempt, as are sole proprietorships and tax-exempt entities registered with the IRS.

Who Must Comply, and What Information is Required?

Businesses required to comply are those classified as “reporting companies.” This includes domestic entities formed through filing with a secretary of state or similar office and foreign entities registered to do business in the US. The key information that these companies must report includes:

• The beneficial owners’ and company applicants’ full legal names, dates of birth, and residential street addresses
• Unique identifying numbers from official documents like driver’s licenses or passports
• An image of the document from which the unique identifying number was obtained
• The business’s legal name, trademarks, and street address
• Taxpayer identification number (TIN)
• Jurisdiction where the business was formed or registered

31 U.S.C. 5336, a section of the United States Code, defines the terms “beneficial owner” and “company applicant.” A beneficial owner is an individual who owns at least 25% of the reporting company or exercises substantial control over it, whether directly or indirectly. A company applicant is an individual who files or oversees the filing of an application to form a corporation, LLC, or similar entity.

Will This Information be Public?

Many business owners are concerned about who will have access to the information in their BOI report. Rest assured that the data is only accessible to a limited group of requestors, including:

• Federal agencies seeking information about national security, intelligence, or law enforcement
• State and local law enforcement agencies with a court order
• The Treasury Department
• Financial institutions and government regulators of financial institutions, with the company’s consent
• Foreign officials requesting information through a US agency

Reporting Deadlines and Processes

For businesses in existence as of January 1, 2024, the initial reporting deadline is January 1, 2025. Entities created between January 1, 2024, and January 1, 2025, have 90 days to file from the date the business is formed. Companies that start on or after January 1, 2025, will have a 30-day window for filing their initial report. In addition, any changes in beneficial ownership or company details—including a business sale, merger, acquisition, or beneficial owner death—must be reported within 30 days.

Small business BOI reports can be submitted electronically through a secure filing system on the FinCEN website. You can also find filing instructions, quick reference guides, step-by-step instructions, and other information on the FinCEN Help & Resources page.

NOTE: Reports of fraudulent emails and letters that appear to be from FinCEN have surfaced. These correspondences solicit company information and include a phony link or QR code. Be informed that FinCEN does not send out such requests, so do not click on links or scan QR codes asking you to submit your BOI report.

Implications for Small Businesses

The Corporate Transparency Act presents specific challenges for small businesses. While the intention is to curb illicit activities, the CTA also increases the administrative burden on small business owners. They must now navigate these new reporting requirements while managing their day-to-day operations. To avoid non-compliance, it’s essential for these businesses to:

• Identify their beneficial owners, often reflected in their operating agreements or state entity registration filings.
• Establish and maintain procedures for updating ownership information.
• Regularly review and comply with FinCEN guidelines and regulations.

Penalties for Non-Compliance

Failure to comply may result in severe civil and criminal penalties, including fines of up to $10,000 and imprisonment for up to two years. Thus, understanding and adhering to these regulations is critical for businesses to avoid such consequences.

Seeking Professional Assistance

Given the complexities of the CTA, small business owners are advised to consult with knowledgeable attorneys or accountants for assistance in filing and maintaining FinCEN compliance. These professionals can provide valuable guidance on interpreting the law, determining beneficial ownership, and completing accurate, timely filings.

Partner with Kennyhertz Perry Attorneys at Law

Navigating the requirements of the Corporate Transparency Act is challenging for many small to medium-sized business owners. Kennyhertz Perry Attorneys at Law is happy to leverage our expertise in business and litigation law to guide you through this process.

Representing clients across various industries, our attorneys provide practical experience and pragmatic business solutions tailored to your unique needs. We understand and appreciate the challenges of business ownership and are committed to helping you maintain compliance with the CTA and other legal requirements. For personalized legal advice and solutions for your business, please contact our law office in Kansas City, MO, at (816) 527-9447.