The Corporate Transparency Act (CTA) is a groundbreaking piece of legislation that aims to combat money laundering, terrorism financing, and other illicit financial activities by improving corporate transparency in the U.S. Understanding the CTA and its requirements is essential for businesses of all sizes to ensure compliance and avoid potential penalties. In this article, we’ll cover everything you need to know about the CTA and what it means for your organization.
For businesses that need guidance on navigating this new requirement, our team at HRDelivered is ready to help you ensure full compliance and avoid penalties. Contact us today for assistance.
Why Was the CTA Introduced?
The CTA was enacted as part of the National Defense Authorization Act (NDAA) in January 2021. The goal of the act is to require certain corporations, limited liability companies (LLCs), and other similar entities to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are those who have substantial control over or own a significant portion of the company, typically defined as individuals holding at least 25% ownership or having significant influence.
The CTA addresses a long-standing issue in the U.S. financial system—the lack of transparency regarding who truly controls certain companies. Anonymous shell companies have been used in the past to obscure ownership, making it easier to hide illegal activities. By requiring companies to disclose their beneficial owners, the CTA aims to:
- Prevent the use of shell companies for illicit activities like money laundering.
- Help law enforcement agencies track and investigate suspicious activities.
- Enhance financial transparency and accountability in the business sector.
Who is Required to Report?
The CTA’s reporting requirements apply to both domestic and foreign entities that are registered to do business in the U.S., including corporations, LLCs, and similar entities. However, there are several exemptions, including:
- Large companies with more than 20 full-time employees and $5 million or more in revenue.
- Certain regulated entities like banks, insurance companies, and registered investment advisers.
- Government entities and inactive companies that meet specific criteria.
Small and medium-sized businesses (SMBs), particularly those with minimal operations, should take special note of these reporting requirements, as they are more likely to fall under the CTA’s scope.
What Information Must Be Reported?
Businesses required to report under the CTA must provide FinCEN with detailed information about their beneficial owners, including:
- Full legal name
- Date of birth
- Current residential or business address
- Identification number from an acceptable form of government-issued ID (e.g., passport, driver’s license)
This information must be accurate and up to date, as any changes in beneficial ownership must be reported within 30 days. Failure to comply with these requirements can result in significant penalties, including fines of up to $500 per day for non-compliance and criminal penalties for willful violations.
When Does the CTA Take Effect?
The CTA’s reporting requirements are set to take effect on January 1, 2024. Entities created or registered before this date will have one year to submit their beneficial ownership information to FinCEN, while newly formed entities must file the required information at the time of registration. It’s crucial for businesses to start preparing now to meet these deadlines.
How to Prepare for Compliance
To ensure compliance with the CTA, businesses should take the following steps:
- Identify Beneficial Owners: Review your company’s ownership structure to identify all beneficial owners who meet the 25% ownership or control criteria.
- Gather Required Information: Collect the necessary information for each beneficial owner, including identification numbers and addresses.
- Monitor Changes: Implement internal processes to track any changes in ownership and ensure that updates are reported to FinCEN within the required timeframe.
- Consult Legal Counsel: Given the complexity of the CTA and potential penalties for non-compliance, it’s a good idea to consult legal counsel or a compliance expert to ensure your business is fully prepared.
Conclusion
The Corporate Transparency Act represents a significant shift in corporate governance and financial transparency. While the law aims to deter illegal activities, it also places new compliance burdens on businesses, particularly small and medium-sized enterprises. By understanding the CTA’s requirements and taking proactive steps, your company can stay ahead of the curve and avoid any penalties associated with non-compliance.
HRDelivered is here to help you navigate these changes smoothly. Our team is ready to assist with any questions or compliance concerns you may have.
Contact us at info@hrdelivered.com or (833) 473-3548 to learn how we can support your business in meeting the requirements of the CTA and staying compliant with the latest regulations.
