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  • Writer's picturePaula Field, CPA, CFE

Understanding the Corporate Transparency Act and Beneficial Ownership Information (BOI)

The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act on January 1, 2021, mandates companies to submit a beneficial ownership report to FinCEN, illuminating the individuals who ultimately own or control the company. This legislation aims to strengthen the fight against money laundering, terrorism financing, and other illicit activities by improving transparency in the beneficial ownership of companies operating in the U.S.


Beginning January 1, 2024, FinCEN will start accepting beneficial ownership reports, a critical compliance requirement for corporations, LLCs, and other relevant entities. The reporting process is designed to shift the responsibility of collecting beneficial ownership information from financial institutions to the reporting entities themselves, thereby enhancing the effectiveness of the CTA's objectives.

The Importance of the Corporate Transparency Act for Businesses

The Corporate Transparency Act (CTA) represents a significant shift in the regulatory landscape for businesses in the United States, emphasizing the importance of transparency and accountability in corporate ownership. Here are key points highlighting the importance of the CTA for businesses:


Mandatory Reporting for Millions of Small Businesses

As of January 1, 2024, the CTA mandates millions of small businesses to file a Beneficial Ownership Information (BOI) Report with FinCEN, aiming to enhance transparency in business operations and ownership.

 

Counteracting Illicit Activities

The legislation is designed to protect national interests by making it more challenging for individuals engaged in money laundering, terrorism financing, tax fraud, and other illegal activities to hide behind opaque corporate structures. By requiring the disclosure of beneficial owners, the CTA aims to deter individuals with malicious intent from exploiting U.S. businesses for illicit purposes.

 

Penalties for Non-Compliance 

Businesses that fail to comply with the CTA's reporting requirements face significant penalties. Civil penalties can reach up to $500 for each day of continued violation, while criminal penalties include imprisonment for up to two years and fines of up to $10,000, underscoring the seriousness with which the U.S. government is approaching corporate transparency.


These components of the CTA underscore its role in fostering a more transparent and secure business environment in the U.S., with the dual goals of protecting national interests and ensuring a level playing field for all businesses.


Identifying Beneficial Owners and Reporting Responsibilities

Identifying beneficial owners and understanding reporting responsibilities under the Corporate Transparency Act (CTA) is crucial for compliance. Here’s a concise guide:


Who Must Report

 

  • Applicable Entities: Corporations, LLCs, and similar entities created by filing with a state's secretary or similar office, or foreign entities registered to do business in the U.S.

 

  • Exemptions: Entities like issuers of securities under Section 12 of the Securities Exchange Act of   1934, governmental entities, banks, publicly traded companies, certain nonprofits, and large operating companies.

 

Defining Beneficial Owners

A beneficial owner is a natural person with either direct or indirect:

 

  • Substantial Control: Authority over significant company decisions, including senior officer roles or control overboard appointments.

 

  • Ownership Interest: At least 25% ownership, considering all forms of equity and rights.

 

  • Exclusions: Minor children, nominees, intermediaries, employees not in control positions, individuals with future interests through inheritance, and creditors.

 

Reporting Requirements

 

  • Information to Include: Full legal name, date of birth, address, and an identifying number from an approved document (U.S. driver’s license, passport, etc.) or a FinCEN identifier for each beneficial owner.

 

Submission Timeline 

 

  • Existing Companies: Reporting companies created or registered to do business in the United States before January 1, 2024, must file by January 1, 2025.

 

  • Newly Created or Registered Companies: Reporting companies created or registered to do business in the United States in 2024 must file within 90 calendar days after receiving notice that their company’s creation or registration is effective.

 

All entities must report changes within 30 days.

 



Who can access Beneficial Ownership Information (BOI)


FinCEN will allow certain federal, state, local, tribal, and foreign officials to access beneficial ownership information for national security, intelligence, and law enforcement purposes.

 

Penalties for Non-Compliance and How to Avoid Them


Understanding the severity of penalties for non-compliance with the Corporate Transparency Act (CTA) is essential for businesses to prioritize and ensure adherence to the law. The consequences of non-compliance are twofold, encompassing both civil and criminal penalties.


Civil Penalties

 

A fine of up to $500 per day for failing to report required information about beneficial owners or for submitting incorrect/incomplete information until the violation is corrected.

 

The civil penalties can escalate to $500 per day, emphasizing the importance of timely and accurate compliance.

 

Criminal Penalties

 

For more severe violations, such as willful non-compliance or submission of false/misleading information, the penalties include imprisonment for up to two years and/or fines up to $10,000.

 

These stringent measures underscore the CTA's commitment to preventing misuse of the corporate structure for illicit activities.

 

As businesses navigate this new regulatory landscape, the importance of accurate and timely compliance cannot be overstated. For entities seeking guidance through the complexities of the CTA, professional advice can be a valuable asset in ensuring that all aspects of the reporting process are managed efficiently and effectively.

 

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Lucrum Legal Accounting assumes no liability for actions taken in reliance upon the information contained herein.

 

 

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