The Corporate Transparency Act (CTA) goes into law on January 1, 2024. The CTA is a sweeping mandate requiring disclosure of the beneficiary ownership of almost every entity in the United States.
The CTA came to life as a part of annual defense department funding legislation.
The CTA was created to expand the anti-money laundering law, which gathers the names and addresses of all beneficial owners of entities in an effort to reduce money laundering, terrorist financing, corruption, and tax fraud. To accomplish its goals, Congress has created a new, US-wide database to house the name and beneficial owners of all “Reporting Companies.” This database will be created and administered by the U.S. Treasury Financial Crimes Enforcement Network or FinCen. (https://www.fincen.gov/news/news-releases/fincen-issues-initial-beneficial-ownership-information-reporting-guidance#:~:text=%E2%80%9CThe%20Corporate%20Transparency%20Act%2C%20through,Himamauli%20Das%2C%20Acting%20Director%20of). The purpose of the new database is to allow government authorities, law enforcement, and financial institutions access to augment or confirm their due diligence efforts. Currently, FinCEN is not on schedule with building this database and has received additional funding for the program. FinCEN is working on the regulations to govern who and how the information may be accessed.
Domestic and foreign reporting companies must file the report. Both domestic and foreign companies are defined as an LLC or other entity created by filing a document with any Secretary of State or other similar office. Other companies that must file include any business registered to do business in the U.S, companies that report less than $5 million in gross annual sales, and companies with fewer than 20 full time employees.
There are 23 entities that are not required to file. These include banks, U.S. Government entities, broker dealers, and others. You can see the full list here: https://www.fincen.gov/boi-faqs.
The filing deadline will begin on or after January 1st, 2024. The report must be filed within 30 calendar days of creation of the entity. If the company was created prior to January 1, 2024 then the initial report must be filed prior to January 1, 2025. Beginning after January 1, 2024, changes to any of the information previously reported must be reported within 30 calendar days.
FAQs:
Can I go ahead and file now? You can not file yet! The database is not ready and will not begin taking information until January 1, 2024.
What do I need to file the report? The form requires information on the company, the beneficial owners, and the company applicant. The basic information, including addresses, of the following:
- Company information: This is the information of the Reporting Company.
- Full legal name
- Trade name or d/b/a
- Current address
- Locus of where the business is doing business (what states its registered to do business in)
- The FEIN if applicable
- Beneficial owner and company applicant information
- Full legal name
- DOB
- Current address
- Passport or unique identifying number
- The beneficial owner of the company is the person who:
- Owns or controls 25% of the ownership
- Exercises “substantial control”
- Substantial control may be exercised directly or indirectly
- Includes trustees or beneficiaries of a trust
- Does include joint ownership even without direct voting control
- The company applicant is the person who created the filings to register the entity and can be:
- The individual who directly files the document that creates or registers the company and,
- the individual who is responsible for directing the filing.
What if I don’t want to file? Late filing penalties exist: $500 per day. Civil penalties of $10,000 with the potential for 2 years of imprisonment.
How can HKA help? HKA is currently preparing our approach for 2024, but we plan to offer resources that will either extend to filing the information for you or pointing you in the right direction! It is still very early on in the process, and so we will continue to learn more and keep you updated as we do.
Additional Resources:
Key questions: https://www.fincen.gov/sites/default/files/shared/BOI_Reporting_Key_Questions_Published_508C.pdf
