This article was originally published on Forbes.
By: Doug Bend
The road to onerous corporate compliance is paved with good intentions. I believe there is no better example than the Corporate Transparency Act (CTA), which took effect on January 1, 2024. The goal of the CTA is to combat money laundering by requiring business entities to report their beneficial owners. However, there are strict deadlines and steep penalties for noncompliance, so owners must understand the CTA and how it might affect their businesses.
Explaining The Corporate Transparency Act
Under the CTA, certain businesses are required to submit a Beneficial Ownership Information report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The report must include the names of each beneficial owner who either owns at least 25% of the business or exercises “substantial control,” according to FinCEN’s FAQ page about the act.
“Substantial control” can be direct or indirect, such as serving as a senior officer; having authority over the hiring and removal of senior officers or the majority of the board; having substantial influence over important decisions or “any other form of substantial control over the reporting company,” FinCEN’s FAQ page also said. You are required to disclose each beneficial owner’s name, date of birth and address and upload an image of either their driver’s license or passport.
Businesses formed after January 1, 2024, are required to file their first report within 90 days of creation or registration. Those formed before January 1, 2024, will have until January 1, 2025. Additionally, you are required to file an updated report within 30 days of any change in your company’s beneficial ownership information, according to FinCEN.
If you would like to file the report for your business entity, I suggest first obtaining a FinCEN ID for the report. You can obtain one here and file the report here.
Exemptions
There are 23 types of entities that are exempt. I recommend reviewing FinCEN’s Small Entity Compliance Guide checklist to see whether your company qualifies for any of these exemptions.
Fraudulent Solicitations
FinCEN has put out an alert to be careful of “fraudulent attempts to solicit information from individuals and entities who may be subject to [CTA] reporting requirements.” Be particularly cautious of e-mails with the subject line “Important Compliance Notice” and that ask you “to click on a URL or to scan a QR code.”
Penalties
If a report is not timely filed, FinCEN can impose civil penalties of $500 per day per entity, a $10,000 criminal penalty per entity and imprisonment for up to two years. To say the least, the consequences of not being in compliance are enormous.
An Ounce Of Prevention Is Worth A Pound Of Cure
Many small-business owners will likely either spend several hours navigating the details of these requirements each year or choose to hire an attorney to make sure each report is properly submitted. For owners who already have too much on their plates, this might feel like one more headache with very stiff penalties for noncompliance.
To make navigating changing compliance requirements more manageable and stay informed of regulatory changes, business owners can consider working with a reputable business attorney and a CPA. Have an annual check-in meeting with your business attorney to discuss any regulatory changes and to make sure you are completing the legal requirements for your business. I believe it is a good idea to meet with your CPA at least twice a year: once in the fall before the books have closed for the year and again early the next year to discuss your corporate tax return.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC, expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.