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Everything You Need to Know About the Corporate Transparency Act

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Starting January 1, 2024, businesses with less than 20 employees must file their Beneficial Ownership Information (BOI) with the Financial Crimes Enforcement Network (FinCEN) as ordered by the Corporate Transparency Act (CTA).

January 4, 2024
Author: NCH

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The CTA is a new Act passed to combat financial crimes like money laundering, tax fraud, and other similar illicit activities. It’s designed to reinforce transparency and accountability in the corporate world. 

But what does this mean for small businesses? If you’re wondering how this recent development will affect your operations, we’re here to help.

In this blog, we’ll explore the Corporate Transparency Act, how it works, and what you must do to ensure your enterprise is BOI-compliant. Read on to learn how you can protect the integrity of your business with this new law.

What is The Corporate Transparency Act of 2024

The Corporate Transparency Act (CTA), enacted in 2022, is part of the National Defense Authorization Act 2021 (NDAA) and falls under the sphere of the Anti-Money Laundering Act of 2020 (AMLA). The CTA imposes significant reporting requirements for US companies.

The main objective of this new Act is to help the federal government address the persistent lack of transparency in the corporate landscape. The design was to target foreign-owned companies, but small domestic companies will be affected. 

See, before the CTA, businesses were not required to disclose the names of their shareholders and owners to the public. This setup gave people anonymity and a loophole they could use for illegal activities like hiding and moving illicit funds.

To prevent these various exploits, Congress created the CTA.

Under this law, businesses under 20 employees must submit their BOI report to the FinCEN. They must also inform the FinCEN of any changes or updates in their initial report. 

This new regulation will allow the federal government to enhance transparency and accountability among entities created within the country.

Who Needs to Comply with the CTA? 

According to the AMLA of 2020, reporting companies refer to any corporation, limited liability company (LLC), and other similar entity that is:

  • Created by submitting a document with the Secretary of State or any similar office in a state or Indian tribe or;
  • Formed under a foreign country’s laws and registered to do business in any state in the country by filing a document with the Secretary of State or any similar office. 

Exemptions For The Corporate Transparency Act

The following legal entities are exempted from the CTA:

  • Governmental Authorities. 
  • Public Utilities
  • Securities Reporting Issuers.
  • Banks.
  • Accounting Firms.
  • Credit Unions. 
  • Financial Market Utilities.
  • Depository Institution.
  • Money Service Providers.
  • Clearing Agencies/Securities Exchanges.
  • Investment Companies/Advisers.
  • Venture Capital Fund Advisers.
  • Pool Investment Vehicles
  • Insurance Providers.
  • State-licensed Insurance Producers.
  • Commodity Exchange Act Registered Entities. 
  • Tax-exempt Entities
  • Entities Assisting Tax-exempt Businesses. 
  • Subsidiaries of Specific Exempt Entities
  • Large Operating Companies.
  • Inactive Entities. 

If you belong to any of these organizations, you’re not required to comply with the requirements of this new law. 

What Should My BOI Report Look Like?

The Corporate Transparency Act 2024 requires reporting companies to include the following information in their BOI report:

Company Information

Your submitted report should include all the important information about your reporting company, like: 

  • Company’s Legal Name/Trade Names (If Any)
  • Current Address of Principal Place of Business
  • Jurisdiction of Formation
  • Tax Identification Number (Tax ID)

Beneficial Owners

The CTA defines “beneficial owners” as people with substantial control over a reporting company or individuals who own or control at least 25% of a reporting company’s ownership interest. 

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If you qualify as one of the beneficial owners of a reporting company, they have to include the following information about you in their report:

  • Full Legal Names
  • Addresses
  • Dates of Birth
  • Unique identification documents like passports, driver’s licenses, and other similar government-issued documents. 

The Act will not consider you a beneficial owner if:

  • You’re considered a minor under the state’s laws in which your reporting company is registered.
  • You’re acting on behalf of someone identified as a beneficial owner. 
  • You’re considered a normal employee.
  • You’re the future inheritor of a reporting company. 
  • You received control or interest from a reporting company through debt or a loan. 

Beneficial owners can report their information to the FinCEN on their own or with the help of their other co-owners. If they decide to submit their report independently, FinCEN will issue them an identifier, which the reporting company can use for their BOI report. 

Company Applicants

Under the new Act, a company applicant is:

  • A person who filed the necessary documents for a foreign business to create a legal entity in the US.
  • A person who controls or administers the filing of the relevant documents if someone else did the actual filing. 

Your BOI report should include the following information about any company applicants that you have: 

  • Full Legal Names
  • Addresses
  • Dates of Birth
  • Unique identification documents like passports, driver’s licenses, and other similar government-issued documents. 

It’s worth noting that this requirement is only imposed on companies created on or after January 1, 2024. If your business was registered before this date, you don’t have to include this information in your report. 

How to Be BOI-compliant

Here’s what you need to do to ensure that your small business is BOI-compliant with the Corporate Transparency Act of 2024:

Find Out If You’re A Reporting Company

First, you must determine whether your business is qualified to be a reporting company. You can refer to the guidelines we mentioned earlier for reference. 

Suppose your enterprise is considered a reporting company. In that case, you must contact your company’s beneficial owners and tell them that the new legislation requires you to disclose your personal information. Individuals may also be permitted to report individually.

Create An Accurate Report

Once you’ve gathered all the information you need for your BOI report, ensure you fill it out accurately. Ask your other beneficial owners to report any changes in their information before your submission date. 

File On Time

The CTA has two different deadlines for the initial BOI reports. For companies formed prior to January 1, 2024, reports are due no later than January 1, 2025. Meanwhile, entities formed on or after January 1, 2024, have 90 days to file their information. Changes in the beneficial ownership must be reported within 30 days of the change.

Anyone who fails to comply with the Act’s reporting requirements or intentionally submits false information will receive civil penalties of $500 per day and even imprisonment for up to two years.  

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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