Navigating the Corporate Transparency Act A Guide to Filing Your Beneficial

What is The Corporate Transparency Act? 

A part of the Anti-Money Laundering Act of 2020 is the new Corporate Transparency Act, which will go into effect on January 1, 2024. A vital piece of legislation, the Corporate transparency Act (CTA), aims to improve corporate structure transparency by requiring the disclosure of beneficial ownership information (BOI). 

Aiming to prevent financial crimes including money laundering and other illegal activities, the CTA brings about a number of important changes that companies and businesses need to adjust to. 

This comprehensive blog clarifies the CTA's goals, entities that must comply, exemptions, reporting requirements, deadlines, penalties, and overall effects on business practices. It also breaks down the intricate details of the law.

CTA-Compliant Companies

The Corporate Transparency Act (CTA) mandates reporting compliance for corporations, limited liability companies, and similar entities formed by state filing. Solely-owned and publicly traded companies are exempt, alongside certain small businesses and nonprofits. 

The CTA targets active business entities, requiring them to disclose beneficial ownership information for individuals with substantial control or ownership exceeding 25%. The Act aims to enhance transparency, combat financial crimes, and promote accountability by compelling covered entities to furnish comprehensive details about their beneficial owners.

CTA Exemptions: Companies Excluded

Rules pertaining to Commodity Trading Advisors (CTAs) reporting may not apply to some organizations. Unless they fall below these standards, large operating companies with more than 20 U.S. workers, more than $5 million in U.S. revenues, and a physical presence in the U.S. are exempt from reporting requirements. Companies that were inactive prior to 2020, not actively conducting business, not held by a foreign entity, having no ownership transfers, and having little financial activity are also excluded. However, if these requirements change, these organizations might no longer be exempt from reporting requirements under the CTA and might have to comply with them.

List of Business That Are Exempted From CTA

The following list includes examples of some of the businesses who are exempted from CTA;

1. Securities reporting issuers

2. Governmental authority

3. Banks

4. Credit union

5. Depository institution holding company

6. Money services businesses

7. Broker or dealer in securities

8. Securities exchange or clearing agency

9. Other Exchange Act registered entities

10. Investment company or investment advisers

11. Venture capital fund adviser

12. Insurance company

13. State-licensed insurance producers

14. Commodity Exchange Act registered entity

15. Public accounting firms

16. Public utility providers

17. Financial market utility

18. Pooled investment vehicles

19. Tax-exempt entity

20. Entity assisting a tax-exempt entity

21. Large operating company

22. Subsidiary of certain exempt entities

23. Inactive entity

The Must Reported Information

FinCEN must get certain personal information from Reporting Companies for every "Beneficial Owner" and "Company Applicant."

An individual who possesses or manages a 25% "ownership interest" in the Reporting Company or exercises "substantial control" over it is classified as a "beneficial owner." Further definitions of both terms can be found in the Final Rule.

An individual who proactively submits the necessary documentation to form a domestic reporting business or register a foreign reporting company is known as a "company applicant." The principal person in charge of supervising or managing the filing, if more than one person is engaged, is also referred to as this person.

Reporting Information

Beneficial Owners and Company Applicant

 The following information must be disclosed: (1) legal name; (2) date of birth; (3) current address; and (4) an identity document (such as a passport) bearing a unique identification number.

Reporting Company Information: 

The following must be disclosed: (1) legal name; (2) trade name; (3) business address; (4) jurisdiction details; and (5) taxpayer identification number issued by the US Internal Revenue Service.

Who will have Access to Your Information?

The reported data will be kept by FinCEN on a private, secure database. Only certain federal and state law enforcement authorities, as well as financial institutions adhering to government-mandated customer due diligence obligations, will receive access to the information.

Penalties For Non-Compliance

What happens if you don't comply? Indeed, there are consequences. Willfully giving false information, neglecting to provide complete information, or failing to update information can result in civil and criminal fines under the CTA, which can reach $10,000 and two years in jail, respectively.

What You Need to do?

Preparing for the Corporate Transparency Act in the USA? Let's navigate steps together. Ready to dive in?

1. Understanding Requirements: Familiarize themselves with the Act's provisions and reporting obligations.

2. Documentation Review: Review and update internal documentation to ensure accurate record-keeping of beneficial ownership information.

3. Internal Policies: Establish or update internal policies and procedures to comply with the Act's requirements.

4. Legal Counsel: Seek guidance from legal advisors specializing in corporate compliance for specific regulatory advice. Like Tax Professionals and Lawyers

5. Training: Provide training to relevant staff to ensure they understand their responsibilities under the Act.

6. Timeline Tracking: Establish a timeline to ensure timely compliance with reporting deadlines.

7. Monitoring Changes: Set up processes to monitor changes in regulations or guidance related to the Act to stay updated and adapt compliance efforts accordingly.

Each company's preparation might vary based on its structure, size, and industry, so seeking tailored legal advice is crucial.