The Corporate Transparency Act (“CTA”), which became law as part of the National Defense Authorization Act in 2021, is aimed at enhancing corporate transparency and combating money laundering and other financial crimes.
Beginning in January, the CTA will require many small businesses to file a beneficial owner report for their companies’ LLC or corporation with the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Non-compliance with the reporting requirements can result in civil and criminal penalties. The information collected by FinCEN will be kept in a database available to certain government agencies, law enforcement, and financial institutions as part of anti-money laundering and counter-terrorism efforts, but will not be accessible to the public.
The CTA aims to address the issue of anonymous shell companies, which have been exploited for money laundering, tax evasion, and other illicit purposes. By requiring businesses to disclose their beneficial owners, the CTA seeks to enhance transparency in corporate structures and strengthen the government’s ability to combat financial crimes.
Who is affected by the new reporting requirements?
These new reporting requirements apply to all U.S. businesses, including corporations, LLCs, (including single-member LLC’s), and other similar entities. Some entities are exempt from reporting, including publicly traded companies; “large operating companies” that meet certain criteria, certain financial institutions, and entities already subject to robust reporting requirements, such as those registered with the Securities and Exchange Commission (“SEC”).
What information do I have to provide?
A reporting entity must report its legal name and any trade name or d/b/a; its address; its taxpayer identification number; and the jurisdiction of the company’s formation. A reporting entity must also provide the names, addresses, dates of birth, and unique identification numbers (such as a driver’s license or passport) of their beneficial owners. Beneficial owners are individuals who directly or indirectly control the entity.
What is the deadline for providing this information?
Existing entities formed prior to January 1, 2024 must submit their initial report to FinCEN by January 1, 2025. However, if you create a new LLC or corporation after January 1, 2024, you must submit your report within 30 days of forming the new LLC or corporation. You must also report changes in beneficial ownership, name, or address within 30 days.
How do I file this information?
Reports are to be filed electronically using FinCEN’s secure filing system.
What if I make a mistake on my report?
If a reporting entity makes a mistake on its report, a corrected report must be filed within 30 days after the entity becomes aware of or has reason to know of the inaccuracy.
What happens if I don’t comply?
For reporting violations, the CTA authorizes a civil penalty of up to $500 for each day that the violation continues or has not been remedied and a fine of up to $10,000 and/or imprisonment (not more than two years).