Understanding the Corporate Transparency Act: Filing Requirements and Penalties for Non-Compliance

Understanding the Corporate Transparency Act: Filing Requirements and Penalties for Non-Compliance

The Corporate Transparency Act (CTA), passed as part of the Anti-Money Laundering Act of 2020, aims to enhance transparency in the corporate world and curb illegal financial activities. Effective January 1, 2024, the CTA requires certain businesses to disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This article will delve into who needs to file, what needs to be filed, and the penalties for failing to meet these requirements.

What Is the Corporate Transparency Act?

The CTA was created to prevent bad actors from exploiting anonymous shell companies for illicit activities such as money laundering, tax evasion, and other financial crimes. By mandating reporting of beneficial ownership information, the CTA seeks to make corporate ownership more transparent and accountable. FinCEN, the government agency responsible for enforcing this act, will receive and maintain this information in a non-public database accessible to law enforcement and certain other entities.

Who Needs to Report Under the CTA?

The CTA requires “reporting companies” to file BOI with FinCEN. This generally includes most corporations, limited liability companies (LLCs), and other similar entities formed or registered to do business in the United States. However, certain entities are exempt, including:

– Large operating companies with more than 20 full-time employees, over $5 million in annual revenue, and a physical office in the U.S.

– Regulated entities such as banks, insurance companies, and registered investment companies

– Nonprofits and religious organizations

Key Filing Requirements for Beneficial Ownership Information (BOI)

Beneficial ownership information is essential to the CTA’s mission. This includes detailed information about individuals who directly or indirectly own or control a substantial interest in a company. The specific information required includes:

1. Full Legal Name of each beneficial owner
2. Date of Birth
3. Residential Address
4. Identification Document (such as a passport or driver’s license), along with an image of the document

Who qualifies as a beneficial owner? Generally, anyone who exercises significant control over the entity or owns at least 25% of it.

Who qualifies as a “company applicant”? The company applicant is the individual who files to create or register the reporting company.

Deadlines for Filing

For companies formed after January 1, 2024, the BOI report must be filed within 30 days of formation or registration. For existing companies created or registered before January 1, 2024, the deadline to submit BOI is January 1, 2025.

Updates and Amendments

If there is a change in beneficial ownership or other reportable information, companies must file an **updated BOI report within 30 days** of the change. This ensures that the information on file with FinCEN remains current and accurate.

Penalties for Non-Compliance

The CTA imposes severe penalties for those who fail to file or provide false information. These penalties include:

1. Civil Penalties – Companies that fail to file the required BOI information may face civil fines of up to $591 per day until the violation is rectified. This accrual of fines continues as long as the information is not provided.
2. Criminal Penalties – Willfully failing to file, or knowingly submitting false or fraudulent information, can result in **criminal fines up to $10,000 and/or up to two years of imprisonment**.

The penalties underscore the seriousness of the CTA’s intent. FinCEN and other federal agencies will be vigilant in monitoring compliance to ensure the BOI filing requirements are met.

How Businesses Can Prepare

For companies affected by the CTA, it’s essential to begin preparing well in advance of the deadlines. Here are a few steps to help with compliance:

1. Identify Beneficial Owners Early – Gather all necessary details for each beneficial owner, including identification documents.
2. Implement a System for Tracking Changes – Since companies are required to update information within 30 days of any changes, a system should be in place to track ownership changes and ensure timely filings.
3. Consider Compliance Assistance – For companies unsure of their filing requirements, consulting a compliance expert may help avoid potential fines and penalties.

Final Thoughts

The Corporate Transparency Act represents a shift toward corporate transparency in the United States. Companies must understand their filing requirements and remain compliant, as the penalties for non-compliance can be severe. By preparing now, businesses can avoid unnecessary fines, maintain good standing, and contribute to a more transparent financial ecosystem. Give our office a call at 775-384-8124 and we can help you on your way to financial freedom.