The Corporate Transparency Act (CTA) has ushered in a new era of financial transparency for businesses operating in the United States. As of January 1, 2024, most small businesses are required to register with the Financial Crimes Enforcement Network (FinCEN) and disclose information about their beneficial owners. This article will guide you through the process of registering your business to comply with the CTA.
Table of Contents
- 1 Understanding the Corporate Transparency Act
- 2 Who Is Subject to Reporting?
- 3 What Is a “Reporting Company”?
- 4 What Information is Required?
- 5 Company Information:
- 6 Beneficial Owner Information:
- 7 How to Do a FINCEN Filing?
- 8 Deadlines for Compliance
- 9 Ongoing Compliance
- 10 Penalties for Non-Compliance with The Corporate Transparency Act
- 11 Seeking Professional Assistance
Understanding the Corporate Transparency Act
The Corporate Transparency Act was enacted to combat illicit financial activities such as money laundering, tax fraud, and terrorism financing. It requires businesses to report beneficial ownership information to FinCEN, creating a more transparent corporate landscape.
Who Is Subject to Reporting?
- The CTA applies both to US entities and to foreign entities doing business in the United States.
- “Reporting Companies” must provide a report disclosing “Beneficial Owners” and “Company Applicant.”
- Information is filed with Financial Crimes Enforcement Network (FinCen), an agency under the US Treasury Department
What Is a “Reporting Company”?
- “Reporting Company” – any entity that is formed by filing a document with a state or jurisdiction that does not qualify for an exemption.
- Exemptions include:
- 23 types of entities that are statutorily exempt – including public companies and companies subject to other regulation.
- Large Operating Company – Companies with physical U.S. presence, over 20 employees, and $5 million gross receipts on tax return.
- Pooled Investment Vehicle – Is an “investment company” and is identified by its legal name by an investment adviser in its form ADV and is advised by an investment adviser or venture capital fund adviser.
- Venture Capital Fund Adviser – An investment adviser that solely advises “venture capital funds” as described in section 203(l) of the ‘40 Act and that has filed Item 10, Schedule A and Schedule B of Part 1A of Form ADV with the SEC.
- Tax exempt entities
- Wholly owned subsidiaries of certain exempt entities
- Inactive entities
What Information is Required?
When registering your business, you’ll need to provide:
Company Information:
- Legal name of the company
- Any trade names or DBAs
- Current street address of the principal place of business
- Jurisdiction of formation
- Taxpayer Identification Number (TIN)
Beneficial Owner Information:
For each beneficial owner (individuals who own 25% or more of the company or exercise substantial control), you must provide:
- Full legal name
- Date of birth
- Residential street address
- Unique identifying number from an acceptable identification document
- An image of the identification document
How to Do a FINCEN Filing?
- Have the business owner(s) obtain an Individual FINCEN ID: https://fincenid.fincen.gov/landing
(this is optional but a good idea) - On-line FINCEN filing: https://boiefiling.fincen.gov/fileboir
Deadlines for Compliance
- Existing businesses (formed before January 1, 2024) have until January 1, 2025, to file their initial report.
- New businesses formed in 2024 have 90 days from formation to file.
- Businesses formed on or after January 1, 2025, will have 30 days to file
Ongoing Compliance
Remember, compliance with the Corporate Transparency Act is not a one-time event. You must update your filing within 30 days of any changes to your beneficial ownership information.
Penalties for Non-Compliance with The Corporate Transparency Act
The consequences of failing to comply with the CTA are severe. Penalties include:
- Civil fines of up to $500 per day
- Criminal fines of up to $10,000
- Imprisonment for up to two years
Seeking Professional Assistance
Given the complexity of the CTA and the potential penalties for non-compliance, many small business owners are seeking professional help. Consider consulting with a lawyer or accountant who specializes in CTA compliance to ensure you’re meeting all requirements.