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New Year’s Day — For many businesses, it’s a time to reflect on the previous year’s challenges, celebrate successes, and prepare for the next 365.

For millions of U.S. businesses, New Year’s Day 2024 will also trigger a timeline to comply with the Corporate Transparency Act (CTA). 

What is the CTA?

It’s designed to keep money out of the hands of bad actors.

The CTA is a component of the Anti-Money Laundering Act of 2020, established to combat money laundering, terrorist financing, and other illicit activities.

Its aim is to increase transparency and prevent the exploitation of U.S. corporations and LLCs for criminal gain by requiring reporting companies, beneficial owners, and business applicants to provide specific information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

Who does the CTA impact?

Reporting Companies, beneficial owners, and company applicants.

The CTA applies to reporting companies, which are privately held domestic or foreign entities formed or registered under state laws.

Since publicly traded companies already have sufficient reporting requirements, they’re not included under the CTA.

Beneficial owners, defined as individuals with substantial control over a reporting company (e.g., a senior officer with authority to appoint or remove a senior officer) or those who own or control at least 25% of the ownership interests, must also report their information. This definition excludes minor children, non-senior employees, and contingent trust beneficiaries.

A company applicant refers to anyone who submits a request to form or register an entity according to state laws (including a person who directed the filing).

How can applicable entities fulfill the CTA’s reporting requirements?

“We need to see some ID.”

In short, the reporting requirements involve providing detailed information about the reporting company, beneficial owners, and company applicants, including legal names, addresses, tax ID numbers, and identification documents.

Here’s a more detailed summary.

Reporting companies must give FinCEN the following:

1. Information identifying the reporting company:
   1. Legal name, trade name, and “Doing Business As” (DBA) name
   2. Address of the primary place of business
   3. The jurisdiction where it was originally formed or first registered
   4. Tax ID number
2. Information identifying the beneficial owners and individuals applying on behalf of the company:
   1. Legal name
   2. Date of birth
   3. Current address
   4. Identification number (passport, driver’s license, etc.)
   5. An image of the document containing the identification information
3. FinCEN ID
   1. Unique identification number, useful for repeat filers

When are reports due?

It depends on when you opened up shop.

As of January 1, 2024, all applicable entities will have a limited timeline to file information with FinCEN.

The first report is due within one year for existing reporting companies, while those created or registered on or after January 1, 2024, must file within 90 days. Subsequent reports are required if there are corrections or changes of ownership.

Examples of changes that necessitate a new filing include:

• Alteration to the company’s address
• Modifications in senior management
• In cases where an owner passes away and the business interests transition to new beneficiaries.

After the initial report, if any corrections or ownership changes occur, a new report must be filed within 30 days of the correction or change. There is no ongoing filing obligation otherwise.

What happens if applicable entities don’t comply?

It’s bad news.

Failure to comply with requirements can result in harsh penalties, including civil fines of up to $500 per day for ongoing violations, as well as fines for criminal penalties of up to $10,000, imprisonment for up to two years, or both. (Yikes!)

What do we recommend?

Talk to a pro and stay current.

Discuss the impact the CTA will have on your business with an expert.

It’s also important to stay informed about your reporting responsibilities. If you’re a beneficial owner, speaking with your attorney or Certified Public Accountant (CPA) might be prudent to ensure you’re fully prepared to assist in meeting these new requirements.

Would you like further guidance regarding the CTA’s requirements?  

Learn more at FinCEN.gov