Purpose of the CTA
The Corporate Transparency Act went into effect on January 1, 2024. The law requires certain companies to report certain information to the Financial Crimes Enforcement Network (“FinCEN”), an office of the U.S. Department of Treasury.
Congress passed the Corporate Transparency Act to combat money laundering and address national security concerns about business entities that have opaque or unclear ownership. It has caused some panic among business owners. The chief concern is that it will vitiate the privacy business owners have generally enjoyed.
In Virginia, for instance, ownership in a business entity is not public. However, there is no need for alarm as the information filings are not made available to the public. They will be shared with state and local law enforcement, however.
Many exemptions and other carve-outs exist which may mean your business is not responsible for filing an information. It’s a one-time filing unless there is a need to correct or update information.
Who Must Report
“Reporting companies” that do not qualify for an exemption will be required to file. A reporting company is defined as a domestic or foreign entity that is created by the filing of a document with a secretary of state of any state or authorized to do business by any state authority.
What Must be Reported
The law requires the disclosure of two main sets of information. One is information on the company and the other on the beneficial owners (i.e., individuals).
Regarding the company, the law mandates the disclosure of the following: (i) full legal name; (ii) trade names or d/b/a names; (iii) address of the entity; (iv) the jurisdiction of the formation or registration; and (v) the federal taxpayer identification number.
Regarding each beneficial owner, the law mandates the disclosure of the following: (i) full legal name; (ii) birthdate; (iii) home address; (iv) an identifying number from an identifying document such as a passport or driver’s license; and (v) an image of the document containing the identification number.
If the company is formed on or after January 1, 2024, additional information must be disclosed about the company applicant, the person who is filing/creating the documents and who is responsible for filing.
When It Must be Filed
If the company existed prior to January 1, 2024, then the company shall have no later than January 1, 2024 to file the initial reports. Companies created after January 1, 2024 had 90 days to file their initial reports.
Any corrections or updates to the information must be submitted within 30 days of discovery or the triggering event.
How and Where Do Business Report
FinCEN has created a the FinCEN BOI E-Filing System available at https://boiefiling.fincen.gov to allow for companies to securely file their beneficial ownership information.
Penalties for Violations of the CTA
The penalties are significant by any measure. Any person who provides false information or otherwise fails to comply with the reporting requirements subject them to civil penalties of up to $500 per day for each violation. Additionally, violations carry criminal penalties of up to two years and fines of up to $10,000.
