The landscape of corporate legislation and governance perpetually evolves, and it is pivotal for businesses to stay up to date. A significant change on the horizon is the Corporate Transparency Act (CTA), set to take effect in January 2024. The CTA aims to thwart malfeasances like money laundering and terrorist financing by demanding greater transparency concerning the ownership of companies.
Who Does the CTA Affect?
The CTA defines “reporting companies” – a broad category encompassing most corporations, limited liability companies, and limited partnerships. However, there are exceptions. Entities employing more than 20 people with over $5 million in gross receipts or sales, and possessing a physical office within the U.S., are exempt. Moreover, certain entities regulated by the federal government such as banks, insurance companies, and publicly traded companies are also outside the purview of this Act. This means that companies employing less than 21 people and generate less than $5,000,000 annually must comply.
What Information is Required?
Affected entities are mandated to submit specific data regarding their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN). To do so, reporting companies must obtain an identification number from FinCEN and submit online a Beneficial Owner Information Report. The term “beneficial owner” refers to any individual who exercises considerable control over an entity, like officers and directors, or holds a 25% or more ownership interest. The information to be provided includes:
- full legal names,
- dates of birth,
- addresses, and
- an identification number from a passport, driver’s license, or other government issued ID.
Implications for Non-compliance
Adherence to the CTA’s requirements is simply a matter of regulatory compliance. Failure to submit the required information can result in significant civil penalties and criminal fines with the maximum civil penalty of $500 per day (up to $10,000) and imprisonment for up to two years.
While January 2024 is when this law goes into effect, different businesses will have different compliance timelines. Entities that already exist before January 1, 2024, have a full calendar year to submit their data, while any formed in 2024 after the implementation date have 90 calendar days to comply. Companies formed after December 31, 2024 will have 30 days to comply. Any exempt company that loses its exempt status must submit its information within 30 days and any changes in the required info must be submitted in 30 days. Considering the intricate nature of these directives and the potential ramifications stemming from non-compliance, a proactive approach is prudent.
If the CTA is indicative of a trend in business regulation of more transparency, whether it comes from a local, state, or federal regulation, having this information readily accessible and a policy or procedure to provide it, will become a best-practices standard.
At The Lynch Law Group, we are committed to offering timely and precise legislative insights. We are available to assist you in managing annual corporate governance, complying with corporate regulations, and ensuring the continued, long-term health of your company. If you’re interested in learning more about how to get ahead of the new CTA and how the CTA might affect you, contact Dan Lynch, Managing Partner at The Lynch Law Group.