The Corporate Transparency Act (CTA) was enacted in January 2021 as part of the National Defense Act to provide the Financial Crimes Enforcement Network (FinCEN) with additional information to help fight money laundering and other illegal activities such as financing terrorism, and identify shell companies. The CTA establishes a database of “beneficial ownership information” (BOI) of reporting companies, and will require an estimated 32.6 million companies to disclose BOI for individuals who own more than a 25 percent stake or have substantial control over a company.
A “reporting company” generally includes all domestic and foreign entities that have filed either formation or registration documents with a U.S. state or an Indian tribe, unless an exemption applies. There are currently 23 listed exemptions, including exemptions for SEC registered entities, banks, credit unions, investment companies and advisors, insurance companies, tax-exempt entities, and large operating companies that employ more than 20 full-time employees in the United States and meet other criteria.
Reporting companies that do not fall within an exemption must file a report stating the full legal name of the reporting company, including any trade or DBA names; the business address; the state of formation or registration; the tax identification number; and the name, birth date, address, and identifying number of all beneficial owners of the entity. Reporting companies created or registered on or before December 31, 2023 must file their report by January 1, 2025. Reporting companies created or registered after December 31, 2023 must file within 30 days of creation/registration, although FinCEN has issued a Notice of Proposed Rulemaking that, if passed, would extend the deadline to 90 days from creation or registration.
The penalties for failing to file the BOI report are severe, including civil penalties of up to $500 per day, and criminal penalties of a $10,000 fine and/or up to two years of imprisonment. We encourage all businesses to consult with their attorneys to determine whether they are required to file a BOI report, and what they need to do to comply with the new CTA reporting requirements.
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