What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) is a significant new law aimed at preventing illegal activities like money laundering, tax evasion, and terrorist financing. It does this by requiring certain companies to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
Who Needs to Comply?
Most small and medium-sized businesses in the U.S. will need to comply with the CTA. This includes corporations, limited liability companies (LLCs), and other similar entities that were formed by filing with a state’s Secretary of State. However, there are some exceptions, including:
– Large companies with over 20 full-time employees and more than $5 million in annual revenue.
– Companies already regulated by federal agencies, like banks, credit unions, securities brokers, and insurance companies.
– Inactive Entities: Companies that have been inactive for at least a year and meet specific criteria.
– Tax exempt companies, like 501(c) organizations.
What Information Must Be Reported?
Businesses covered by the CTA must provide the following details about their beneficial owners (individuals who own or control at least 25% of the company):
– Full legal name
– Date of birth
– Residential or business address
– A unique identifying number from an acceptable identification document (e.g., driver’s license or passport) and a copy of that identification document
When to Report
Existing businesses will need to report this information by January 1, 2025. New businesses will need to report their beneficial owners (and the identities of the persons filing to set up the business) at the time of formation.
Why is This Important?
Non-compliance with the CTA can lead to severe penalties, including:
– Civil Penalties: Fines up to $500 per day for each day the violation continues.
– Criminal Penalties: Imprisonment for up to two years and fines up to $10,000.
Your Next Steps
1. Identify Beneficial Owners: Determine who meets the criteria of a beneficial owner in your company.
2. Gather Required Information: Collect the necessary details about each beneficial owner.
3. File the Required Report: You can do this yourself or have it done for you by your attorney, your accountant or a company that specializes in filing such reports.
CTA Constitutionality Being Challenged in Court
In March, 2024, a federal district court in the Northern District of Alabama declared the CTA unconstitutional and the FinCEN has appealed. Despite this judicial declaration, the FenCEN is continuing to enforce the CTA, so all filing deadlines and potential penalties for non-compliance are still in effect at this time.
For more detailed information, you can visit the FinCEN website at https://www.fincen.gov/boi or consult with your legal advisor.
Rebecca Pennington has been a trial lawyer in Houston for over 35 years and for 3 years was the Director of the Trial Advocacy Institute at the University of Houston Law Center. She is also a long time horse breeder and owner of Sonesta Farms in Cypress, Texas. Today she primarily practices equine law and hosts an equine law web site at www.EquineLawyer.net .
