Ringing in the New Year with the CTA

“New corp, who dis?”

On January 1, 2021, Congress enacted the National Defense Authorization Act (“NDAA”) in order to modernize and reinforce the government’s anti-money laundering efforts. The NDAA includes the Anti-Money Laundering Act (“AML”) which, in turn, includes the Corporate Transparency Act (“CTA”). This legislation, which goes into effect on January 1, 2024, aims to enhance transparency, facilitate law enforcement investigations, and contribute to the global fight against financial crimes by requiring most businesses in the United States to report ownership information to the U.S. Treasury's Financial Crimes and Enforcement Network (“FinCEN”). This means that at least some action is required by anyone who has formed or registered a business entity in the United States. If that’s you, you will need to either confirm that your business is not a reporting company and thereby exempt from the CTA’s reporting requirements or, if your business is a reporting company, you’ll need to submit a report to FinCEN. 

This law impacts millions of business entities, so you are definitely not alone! Although the new requirements may seem confusing at first, we can help guide you through every step of the process to ensure that your business is in compliance with the law. Let’s start from the top!

First of all, what is the Corporate Transparency Act and how does it work?

The CTA is a piece of legislation aimed at promoting transparency in corporate ownership. It addressed growing concerns about malign actors who seek to conceal their ownership of corporations, LLCs, or other similar entities to engage in illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption. These illegal activities harm the national security interests of the United States and its allies. 

Starting on January 1, 2024, owners of companies known as “reporting companies” will be required to report all their beneficial owners to FinCEN. The information reported will not be publicly available, however, it will be disclosed to federal and state law enforcement agencies and financial institutions in certain circumstances.

How will I know if my business is a reporting business? What do I report?

Although there are exceptions that may apply, generally speaking, companies created or doing business under the laws of the United States, its territories, or Indian tribes, such as corporations and LLCs, will be reporting companies that must submit their beneficial owners’ information (“BOI”) to FinCEN. 

A beneficial owner is any individual who either directly or indirectly (i) exercises “substantial control” over the reporting company, and/or (ii) owns or controls at least 25% of the reporting company’s interest. An individual exercises substantial control of a company if they are a senior officer (i.e., president, chief executive officer, chief financial officer, chief operating officer, etc.), if they wield appointment or removal power over a senior officer or similar position, or if they direct or influence any major decisions made on behalf of the company. Beneficial owners will be required to report their full name, date of birth, address, and other identifying information to FinCEN. 

What if my business has subsidiaries? Do I need to file a report for each company?

Any company that is considered a reporting company must file its own BOI report regardless of whether or not it is a subsidiary. Generally, a parent company may not file a single BOI on behalf of a group of companies. In some cases, however, a special reporting rule may apply whereby a reporting company may submit the parent company’s name in lieu of its own BOI. One of those special reporting rules states that subsidiaries of certain types of exempt entities, such as credit unions, banks, state-licensed insurance providers, and tax-exempt entities, are relieved from the BOI reporting requirement. 

When do I have to report my business information?

For companies that were created before January 1, 2024, the deadline to file the initial BOI is January 1, 2025. For companies that were created or registered on or after January 1, 2024, there is a 90-day window to file the company’s BOI after receiving notice of its creation or notice that its registration is effective.  

What happens if I do not report my business information to FinCEN?

The Act imposes penalties for non-compliance. Willfully providing false information, failing to provide complete information, or failing to update information may lead to civil penalties of up to $500 for each day that the violation continues or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Additionally, an individual may be held liable under the CTA if they caused the reporting failure or were a senior officer at the time of the reporting failure. Let’s make sure this doesn’t happen to you!

How can you help?

Thankfully, we can take care of all of the reporting requirements of the CTA for you. If you are a business owner who wants to spend more time strategizing, marketing, and growing your business, rather than trying to read through a bunch of legislative requirements, request service here, schedule a consult, or shoot us an email at hello@ascend.law!