On January 1, 2021, Congress passed the Corporate Transparency Act (CTA), which imposes extensive reporting requirements on the owners of entities operating in the United States. One of the essential functions of the CTA is to offer greater transparency of legal entities, as well as to help detect and fight illegal activities.
The new reporting requirements will make legal entities file new beneficial ownership disclosure forms to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury Department.
FinCEN creates forms through which beneficial owners can register beneficial ownership information to FinCEN. They will create the registry, including all the reporting companies, before January 1, 2024. It is also possible for FinCEN to access information from the IRS and other government sources in order to verify the beneficial ownership information of legal entities.
According to the Corporate Transparency Act, companies need to submit all essential information, including beneficial owners, when the entity was created, along with other details. Any individual establishing a company in the US will have to provide the following details to FinCEN:
This information needs to be updated every year in case of changes. FinCEN is responsible for promoting national security by gathering, disseminating, and completing analysis of financial intelligence. Because of the US Corporate Transparency Act regulations, the information can be revealed to any federal agency, law enforcement agencies, and financial institutions that are responsible for conducting due diligence with customer consent.
The reporting requirements apply to all entities that exist, such as corporations and limited liability companies (LLCs), along with new entities that are about to form. If you are the beneficial owner of a business entity and you want to remain compliant with this new law, it’s important to understand all its reporting requirements. If you want to learn more details about the CTA and its requirements, you can consult with a startup lawyer.
The corporate transparency act (CTA) will go into effect on January 1, 2024. If your company was registered before this date, you need to file a report with FinCEN by January 1st, 2025.
An entity must file an initial report within 30 calendar days after it is created. If a company wants to change its beneficial ownership information reporting requirement, it must file an update report within 30 days of the modification. It is important to note that failure to file a report can result in penalties and fines.
There are several reporting companies, including existing and future domestic companies, as well as foreign companies that may be subject to some exemptions.
CTA exempts nearly 23 entities, such as large companies, accounting firms, public utilities, pooled investment vehicles, registered commodity exchange act entities, banks, and more.
Beneficiary owners refer to individuals who, directly or indirectly, exercise substantial control over a reporting company, or control at least 25% of ownership interest in a company.
A company exercises substantial control when it serves as a senior officer or has the authority of hiring or firing the senior officer. Some of the exceptions to the rule are that minor children, employees excluding senior officers, nominees, or creditors may not qualify as beneficiary owners.
The Corporate Transparency Act’s final regulations are the rules and procedures issued by FinCEN to ensure that all entities comply with their reporting requirements. The regulations include filing deadlines, outlining which forms to use, and other relevant details. The regulations are essential for ensuring that companies are providing accurate and up-to-date information about the beneficial owners of their companies.
Moreover, they cover business contract requirements and other related matters. By adhering to these regulations, companies will be able to ensure compliance with the CTA and avoid any potential penalties.
Anyone who violates the Corporate Transparency Act may face civil and criminal penalties. They may be subject to a civil penalty of $500 per day, up to a maximum of $10,000. They may also be imprisoned for up to two years under certain circumstances
If you would like to know how the Corporate Transparency Act may affect your business, schedule a free case consultation at The Venture Lawyer. We can help you understand how to keep you compliant.
