Starting January 1, 2024, all businesses organized and operating in the United States must comply with the Corporate Transparency Act (CTA). This typically requires each entity to register its “beneficiary” with the Financial Crimes Enforcement Network (FinCEN).
What is a CTA?
The CTA is a U.S. law enacted in 2021. The purpose of the CTA is to combat money laundering, fraud, and other illegal activities by requiring entities to report beneficial owners to FinCEN’s private database. The CTA aims to increase transparency and accountability in corporate ownership and prevent anonymous organizations from being exploited for illegal purposes.
Which organizations must report?
Organizations registered to do business or organized with a U.S. state or Native American tribe must comply with the CTA. This includes corporations, LLCs, LLPs, LPs, business trusts, and other organizations formed by filing documents with the Secretary of State or Native American tribes.
Are there any reporting exemptions?
FinCEN publishes a list of entities exempt from reporting, including certain nonprofit organizations, “large entities,” and entities operating in highly regulated industries (such as banks and CPA firms) I did. considered exempt. Given the list of factors, most LLCs do not meet the exemption and must be reported under the CTA, even if the stock is closely held. All non-exempt entities must register their beneficiaries with FinCEN. Unless a company has confirmed its exempt status against the factors published by FinCEN, it should assume that it is a reporting company.
What do I have to report and how often?
Each company must report its beneficial owners. Unitholders are individuals who ultimately own or exercise effective control of at least 25% of the company. For entity-owned entities, the ultimate upstream individual owner is the beneficiary that must be reported for the underlying entity. FinCEN requires that certain information be reported for each beneficiary, including legal name, unexpired U.S. identification card, and current address. After reporting, companies must update FinCEN within 30 days if the reported information changes. Entities must report information such as legal entity name, trade name, and tax identification number, among other things.
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How is the information collected processed?
Data is entered into the Beneficiary Secure System (BOSS), a database operated and maintained by FinCEN. These reports are considered confidential information and are kept confidential except for access by: FinCEN, certain court-authorized law enforcement agencies, non-U.S. law enforcement agencies (such as foreign governments), and financial institutions. With institutional and regulatory consent. The reporting party.
When does compliance start?
Reporting began on January 1, 2024. Entities formed before the end of 2023 must report their current beneficial ownership by January 1, 2025. For companies registered or established after December 31, 2023, reporting must be made within 90 days of the organization’s formation. Entities organized after 2025 must register within 30 days of organization. Entities organized after 2024 will also need to report on the “applicant company,” which is the individual who coordinates and coordinates the registration or organization of the entity.
What are the possible consequences of failure to report?
Deliberate failure to report required information under the CTA can result in significant penalties. Regarding reporting violations, the CTA provides: (i) Civil penalties of up to $500 per day if the violation continues or is not cured. (ii) a criminal penalty of up to $10,000, imprisonment of up to two years, or both; For disclosure and use violations, the CTA provides: (i) Civil penalties of up to $500 per day if the violation continues or is not cured. (ii) criminal penalties of up to $250,000, imprisonment of up to five years, or both;
The attorneys at Parsons Behle & Latimer are familiar with the CTA and can assist with the registration and ongoing compliance required under the CTA through a customized interface. We have developed an integrated registration process and dedicated team to assist our clients with CTA compliance and maintenance. To discuss obtaining guidance for your organization, please email cta@parsonsbehle.com.
Jamie Tracht is a corporate transaction attorney whose practice focuses on mergers and acquisitions, corporate restructuring, complex contract drafting and negotiation, start-up and business formation, and corporate governance.
