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Beginning January 1, 2024, all corporations, LLCs, and other entities created in the United States, whether through filing with the secretary of state or a similar office or those created in a foreign country and registered to do business in a state, must file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN).
The Corporate Transparency Act (CTA) is a federal law enacted in 2020 as part of the Anti-Money Laundering Act of 2020. It mandates certain entities to report beneficial ownership information to FinCEN, aiming to combat money laundering, terrorist financing, and other financial crimes.
Under the CTA, a “beneficial owner” is defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the reporting company’s ownership interests.
Reporting companies under the CTA encompass all corporations, LLCs, and other entities created in the United States, as well as foreign entities registered to do business in the United States. Exceptions to reporting requirements exist, such as for publicly traded companies and certain financial institutions.
Reporting companies must file an initial report with FinCEN on or after January 1, 2024, and on or before January 1, 2025. Reporting companies must also file an updated report within 30 days of any changes to their beneficial ownership information.
The CTA’s beneficial ownership reporting requirements are a significant new compliance burden for businesses. However, the CTA is an important tool in the fight against financial crime, and businesses should take steps to ensure that they are compliant with the new law.
An individual exercises substantial control over a reporting company if they have the ability to direct, determine, or substantially influence important decisions made by the company. This includes decisions about the company’s business strategy, investments, and financial operations.
Ownership interests include things like stock, equity, and membership interests in a company. Ownership interests can be held directly or indirectly, through other entities or arrangements.
The CTA exempts certain individuals from being considered beneficial owners, including:
Businesses that fail to comply with the CTA’s reporting requirements may be subject to civil and criminal penalties. Civil penalties can range up to $500,000 per violation, and criminal penalties can include up to five years in prison.
Beneficial ownership transparency is important for a number of reasons. It helps to:
Combat money laundering and terrorist financing by making it more difficult for criminals to hide their identities and assets
Deter corporate fraud and other financial crimes by increasing the risk of detection
Promote accountability and good governance in businesses
Protect consumers and investors from fraud and other abuses
The CTA’s beneficial ownership reporting requirements are a significant step forward in improving beneficial ownership transparency in the United States. By complying with the CTA, businesses can help to make the financial system more secure and protect the public from financial crimes.
The CTA is a new law that requires businesses to report information about their beneficial owners to the FinCEN. This is an important step in combating financial crime and promoting transparency in the business community. Businesses should take steps to understand who their beneficial owners are and to comply with the new reporting requirements. Failure to do so could result in civil or criminal penalties.
To learn more about how you can comply with CTA, contact us today to schedule a consultation.
