Is Your Business Ready??? Corporate Transparency Act Applies to all Businesses, including LLC’s

The Corporate Transparency Act (CTA) is a piece of legislation aimed at promoting corporate transparency and combating illicit financial activities in the United States that goes into effect January 1, 2024. The CTA imposes significant reporting requirements in the form of reports that can be time consuming and difficult to put together due to the nature of information required in the reports. The Financial Crimes Enforcement Network (FinCEN) estimates more than 32.5 million reports will be filed in the first year of the CTA, and 5 million per year thereafter. Penalties for non-compliance range from up to $500 per day until the violation is remedied to a criminal fine of up to $10,000 and/or up to two years imprisonment.

This summary provides business owners with a concise overview of the key aspects of the CTA and its implications for businesses.

Reporting Requirements
Covered entities, including corporations, limited liability companies (LLCs), and other similar legal entities must submit a report to FinCEN containing information about their beneficial owners. This includes names, dates of birth, addresses, and unique identification numbers such as Social Security or passport numbers. Any changes to this information must be promptly updated to FinCEN.

Beneficial Owners
Under the CTA, a beneficial owner is defined as any individual who directly or indirectly owns or controls at least 25% of the ownership interest in a company. This definition also encompasses individuals who exercise substantial control over the company’s operations or management.

Compliance and Penalties
Covered entities must comply with the reporting obligations within a designated time-frame (within 30 days of formation if formed on or after January 1, 2024, and by December 31, 2024, if formed before January 1, 2024). Failure to provide accurate and complete information may result in civil and criminal penalties. Non-compliant entities may face fines, imprisonment, or both.

Implications for Businesses
Businesses impacted by the CTA should assess their ownership structures, identify beneficial owners, and ensure compliance with reporting requirements. Because reporting requirements include disclosing information of a personal nature, this may involve updating internal processes, gathering necessary information, and implementing systems to meet the reporting obligations.

Conclusion
Business owners should familiarize themselves with the CTA’s requirements and take appropriate steps to ensure compliance to avoid potential liability. There are approximately twenty-three exemptions for compliance under the CTA. To mitigate risk and potential costs, businesses should consider shifting the burden of reporting to individual members. Speak to your legal counsel or contact Hook Law for guidance on navigating the Corporate Transparency Act.