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The Corporate Transparency Act (CTA)
Before 2024, there was no uniform federal procedure in the United States for reporting beneficial ownership.
As we step into 2024, the Corporate Transparency Act (CTA) comes into effect, requiring a wide range of businesses to disclose their beneficial ownership details to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of Treasury.
Who needs to report ?
Your company may be required to disclose information about its beneficial owners if it falls under one of the following categories, regardless of the size of the business :
- It is a corporation or a limited liability company (LLC) created in the United States.
- It is a foreign company registered to do business in any U.S. state.
However, there are 23 types of entities [1] exempt from these reporting requirements, including publicly traded companies, nonprofits, and certain large operating companies. It is important to note that small and medium-sized private companies are not included in these exemptions and are therefore subject to the reporting requirements.
Reporting requirement
- Beneficial Owner Identification : Beneficial owners are those individuals who ultimately own or control a significant portion of a company or who have substantial influence over its operations. They fall under one of the following categories :
- Senior officers of the Reporting Company
- Individuals or entities with substantial control over the Reporting Company
- Individuals or entities who have 25% or more control over the ownership interests in the Reporting Company.
- Information Collection and Submission : Collect necessary details of the beneficial owners, including full legal names, addresses, birthdates, and unique identification numbers. To report this information, you can access the from by going to FinCEN’s BOI E-Filing website [2] and select « File BOIR ».
- Information Update : Maintain up-to-date records of beneficial ownership information. Report any changes within a year of discovery.
Reporting obligations and deadlines
The reporting requirements under the CTA vary based on the formation date of the company. From January 1, 2024 :
- Companies created or registered before January 1, 2024, have until January 1, 2025, to submit their initial reports.
- Companies formed on or after January 1, 2024, must submit their initial reports within 30 days.
Penalties for non compliance
- Inaccurate Reporting : Inaccurate reporting may attract fines up to $10,000.
- Deliberate False Information or Failure to Report : Deliberately providing false information or failing to report can lead to imprisonment for up to two years.
- Non compliance with Reporting Requirement : Non compliance with the reporting requirement can also result in civil penalties of up to $500 per day and up to $10,000 per violation.
[1] Securities reporting issuer (1), Governmental authority (2), Bank (3), Credit union (4), Depository institution holding company (5), Money services business (6), Broker or dealer in securities (7), Securities exchange or clearing agency (8), Other Exchange Act registered entity (9), Investment company or investment adviser (10), Venture capital fund adviser (11), Insurance company (12), State-licensed insurance producer (13), Commodity Exchange Act registered entity (14), Accounting firm (15), Public utility (16), Financial market utility (17), Pooled investment vehicle (18), Tax-exempt entity (19), Entity assisting a tax-exempt entity (20), Large operating company (21), Subsidiary of certain exempt entities (22), Inactive entity (23).