Breaking News
On March 1, 2024, U.S. District Court Judge Liles C. Burke issued an opinion declaring the Corporate Transparency Act (CTA) unconstitutional. Consequently, the government is barred from enforcing the CTA, offering temporary relief for small businesses from compliance with the now unconstitutional regulatory regime. This removes any requirement for privately held companies to file under the CTA. We expect this decision to be appealed and will continue to keep you informed to the extent there is another change.
By: Benjamin Jacob
The Corporate Transparency Act (CTA) introduces significant reporting requirements for many businesses in the United States. Understanding these requirements and the potential penalties for noncompliance is essential for all affected businesses. This article provides an overview on what the CTA entails, who it affects, and the crucial steps for compliance, along with an overview of the penalties for noncompliance.
Who is Affected by the CTA?
The CTA focuses on “Domestic Reporting Companies” such as corporations, limited partnerships, LLCs, and LLPs. These entities are typically formed by filing documents with a secretary of state. However, the CTA exempts certain companies, including larger businesses and those already subject to substantial public disclosures. It’s important to note that exemption status is not static; changes in a company’s structure or operations can lead to CTA applicability.
Many companies including early stage startups who previously never had to report such information will be required to comply with the CTA. While the required reporting presents a new compliance challenge, the collected information reported and submitted to the Financial Crimes Enforcement Network (FinCEN) and maintained in the Beneficial Ownership Information (BOI) database will be confidential and not made available to the general public thereby making possible the same level of anonymity currently in place.
Key Exclusions and Exemptions
Entities like sole proprietorships and general partnerships are not covered by the CTA. Among the 23 exemption categories are “Large Operating Companies” meeting specific criteria, publicly-traded companies, and certain tax-exempt entities like specific 501(c)(3) organizations.
Identifying Beneficial Owners
Non-exempt companies must disclose information about each “Beneficial Owner” and “Company Applicant.” A Beneficial Owner is someone who has significant control or owns at least 25% of the company’s interests. This includes senior officers and individuals with substantial decision-making power.
Information Collection and Reporting Requirements
Reporting Companies are required to collect comprehensive information, including company names, business locations, jurisdiction of formation, and Tax Identification Numbers. For Beneficial Owners and Company Applicants, details such as legal names, birth dates, addresses, and identification numbers must be reported.
Reporting to FinCEN
The collected information must be submitted to the FinCEN. To protect privacy, individuals can request a “FinCEN Identifier” to use in lieu of detailed personal information.
Compliance Timeframes
Existing companies must submit their initial Beneficial Ownership Information (BOI) by January 1, 2025. New companies established on or after January 1, 2024, have 90 days after formation to comply, while those formed on or after January 1, 2025, have 30 days post-formation to comply. Any change in exemption status triggers a 30-day deadline for BOI submission.
Penalties for Noncompliance
The consequences of failing to comply with the CTA are severe. Noncompliant entities and individuals can face civil penalties of up to $500 per day for ongoing violations, as well as criminal penalties. These criminal penalties can include fines of up to $10,000 and/or imprisonment for up to two years. It’s crucial for businesses to understand and adhere to these reporting requirements to avoid these significant penalties.
Conclusion
The CTA presents new and complicated federal legislation aimed at enhancing business ownership transparency in the U.S. Businesses must diligently ensure compliance to avoid onerous penalties for noncompliance. As regulations and interpretations evolve, seeking legal advice is recommended for specific guidance. We strongly urge you to reach out to your Fourscore attorney to determine whether you or your company have any reporting obligations under the CTA. Our team at Fourscore is ready to help.
Resources – Links:
Corporate Transparency Act (31 U.S. Code §5336): 31 U.S. Code § 5336 – Beneficial ownership information reporting requirements
FinCEN – BOI: Beneficial Ownership Information Reporting | FinCEN.gov
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