The Corporate Transparency Act

Companies across the United States should be aware of the Corporate Transparency Act (CTA), a new requirement stemming from the Anti-Money Laundering Act (AMLA) of 2020, aimed at allowing Congress to create measures to help combat money laundering in the United States.  Congress first enacted the CTA in January 2021 as an expansion of the AMLA which established protective measures against illegal activities including money laundering.  According to the United States Department of the Treasury, this act was primarily put in place to combat the practice of using shell companies for money laundering to conceal illicit activity such as drug trafficking, corruption, and terrorism.  Businesses who are not qualified for an exemption are required to begin compliance by January 1, 2024.

Why the Corporate Transparency Act?

The CTA was enacted because, according to §6402 of the act, the absence of state laws requiring companies to name their beneficial owners enabled the use of shell companies to conduct illicit activity.  The purpose of the CTA is primarily to combat this problem by directing the Financial Crimes Enforcement Network (FinCEN) of the United States Treasury Department to establish and monitor a national registry of entities deemed “reporting entities.”  In September 2022, FinCEN issued the beneficial ownership information reporting rule, describing who must file a Beneficial Ownership Information (BOI) report, what information must be reported, and setting the January 2024 deadline.

Does My Business Qualify as a Reporting Entity?

Reporting entities can be either domestic or foreign companies.  According to §6403 of the CTA, a domestic reporting company is a corporation, LLP, or other entity that is created by filing a document with a Secretary of State or similar office under a state or Indian tribe.  This may include LLCs, cooperatives, or any other business organization, so long as it was created by the filing of a document under the laws of the state in which the documents were filed.  A foreign reporting company is required to report if it is a corporation, LLC, or other entity that is formed under the law of a foreign country who is registered to do business by the filing of a document with a Secretary of State or any similar office in a state or Indian tribe.  If your business qualifies as a reporting company, then compliance is required by January 1, 2024.

How do I Comply by the Deadline?

According to  §6403(b)  of the CTA, reporting companies must provide both business and beneficial ownership information to the US Treasury’s Financial Crimes and Reinforcement Network.  A beneficial owner is any individual who directly or indirectly exercises substantial control over the reporting company, or who directly or indirectly owns twenty-five percent of the ownership interests of the company.  Substantial control is defined as someone who directs, determines, or exercises substantial influence over important decisions the reporting company makes.  Ownership interests are arrangements that establish ownership rights in the reporting company.  The required information includes a beneficial owner’s:

• full legal name;
• date of birth;
• current residential or business street address;
• unique identifying license, from an acceptable identification document such as a passport, driver’s license or other government issued identification document, or a FinCEN identifier;
• an image of that identification document.

Companies must provide:

• the legal name of the company;
• any trade name (DBA) used by the company;
• the current street address of its principal place of business or the address from which it conducts business in the U.S.;
• the company’s taxpayer identification number.

According to the American Bar Association, beginning on January 1, 2024, a company already in existence has one year to file this information with the online Beneficial Ownership E-Filing System.  A company formed after January 1 has thirty days from the formation of their company to file the appropriate information.  Any changes to the company made after the filing of a report must be updated with an amendment.  If a business does not want to comply with these requirements, they must confirm that they qualify for an exemption from the CTA’s reporting requirements.

Do I Qualify for an Exemption?

There are a few ways that a company may qualify for an exemption.  First, according the Thomson Reuters, sole-proprietorships that don’t use a single-member LLC are not considered a reporting company.  Second, the CTA lists twenty-three exempted entities that are not required to report.  A list of non-reporting entities may be found here.  Furthermore, there are also five categories of beneficial owners who do not have to report: a minor child; a nominee, intermediary, custodian, or agent; an employee; an inheritor; or a creditor.  A checklist and further explanation of beneficial owner exemptions can be found in chapter 2.4 of the BOI Small Compliance Guide.

What are the Penalties for Non-Compliance?

According to the American Bar Association, penalties for companies that do not comply can be both fines and jail time.  For those who do not comply in a timely and proper manner, fines are accrued at $500 per day, up to $10,000.  Additionally, noncompliance could lead to up to two years of jail time.  Importantly, these penalties are also applicable to improperly amended reports.  With these steep costs in mind, companies should do their best to prepare for the rapidly approaching enactment date of the Corporate Transparency Act.

Questions About The Corporate Transparency Act? Call The Law Group Of Northwest Arkansas PLLC.

If you have any questions regarding The Corporate Transparency Act, or if you or someone you know are required to report, The Law Group of Northwest Arkansas can help. Contact The Law Group of Northwest Arkansas PLLC  to schedule a free, initial consultation. You can contact us by using our online contact form or calling (479)-316-3760.