Keep It Legal

The Corporate Transparency Act (“CTA”) went into effect on Jan. 1, 2024, and it applies to millions of small businesses. The introductory paragraph to the CTA in H.R. 2513 states that the purpose of the new law is “To ensure that persons who form corporations or limited liability companies in the United States disclose the beneficial owners of those corporations or limited liability companies, in order to prevent wrongdoers from exploiting United States corporations and limited liability companies for criminal gain, to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and limited liability companies, and for other purposes.”

While the nuts and bolts of the CTA are pretty dense, compliance with the act is relatively simple.

From the US Chamber of Commerce’s website: “Enacted in 2021, the CTA aims to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market. Under the new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), providing details identifying individuals who are associated with the reporting company.”

A beneficial owner, as defi ned by this act, is anyone who has “major influence” on the company through “decisions or operations”, owns at least 25% of the company, or has “a similar level of control over the company’s equity.” People involved with the company that fall into that criteria will need to report their names, addresses, birthdays, and identification numbers (such as a license or passport number), and the jurisdiction of the documents.

LLCs, partnerships, and corporations will need to report. Companies that were formed within their state before Jan. 1, 2024, will have until January 1, 2025, to comply with the reporting. Companies formed on Jan. 1, 2024, or after will have 90 days to complete their report. If there are any changes to the ownership of the company, the report must be updated when those changes happen. Non-compliance can result in high penalties and possible imprisonment. The escalating fines range from $500 to $10,000 per violation and jail time of up to two years.

Please consult with a licensed attorney and/or an accountant to ensure that your business is in compliance.