What You Need to Know About the Federal Corporate Transparency Act
The Federal Corporate Transparency Act (CTA), enacted by Congress as a component of the Anti-Money Laundering Act of 2020, goes into effect starting January 1, 2024. Under the CTA, millions of small businesses will be required to file reports containing personally identifiable information for beneficial owners and company applicants with the federal government. Companies that fail to do this will face large fines and may face criminal penalties, including prison time. Compliance is mandatory and reports must be filed with the U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN).
The primary goal of the CTA is to establish uniform reporting requirements for businesses. There are two components to the new reporting requirements. The first is information on the business entity, or the “reporting company.” The second is the information on the reporting company owners, or the “beneficial owners.” A report with this information must be filed via a FinCEN database starting in 2024. The information in the report will only be available to law enforcement and not the general public.
Not Every Business Needs to Report
The CTA primarily affects small businesses and not large companies or certain other exempt entities. The following are the types of entities that must report:
- Entities formed in the United States or registered to do business in the United States.
- Entities that are a corporation or limited liability company.
- Entities that have 20 or less full-time employees, and $5 million or less in annual revenue for the prior year.
Reporting companies must file information on both the company and certain beneficial owners. For reporting companies that were formed prior to January 1, 2024, reports must be filed with FinCEN not later than January 1, 2025. For reporting companies created after January 1, 2024, reports must be filed with FinCEN not later than 90 days after formation.
Reporting companies must also update their reports if information on the reports change, and the updates must be filed through FinCEN not later than 30 days after the change. Providing or attempting to provide false beneficial ownership information, or failing to report or complete beneficial ownership information, can lead to a civil penalty of up to $500 per day, with a maximum fine of $10,000 or up to a 2-year prison sentence.
The CTA is ushering in a new era of transparency regarding business entities. Reporting deadlines are approaching quickly, and businesses should begin planning now to ensure they have all the information needed to comply with the reporting requirements. Businesses should also remember that compliance is mandatory.
Edward McMurray represents clients in Levin Ginsburg’s Corporate Law Practice and has extensive experience with advising tax-exempt entities at all stages and businesses of all sizes. Should you have any questions about navigating the CTA, please contact Edward at firstname.lastname@example.org or any Levin Ginsburg attorney at 312-368-0100.
Levin Ginsburg is a full-service law firm that prides itself on being counselors for all types of businesses and individuals. Regardless of your need, our attorneys exercise great care in being thorough, organized, and efficient in serving our clients.