What is the Corporate Transparency Act?
The Corporate Transparency Act or the CTA is an act of Congress passed by the United States and administered a Financial Crimes Enforcement Network or FinCEN. The CTA is to enhance transparency in the US financial system and combat illicit money activities like money laundering, tax evasion, and terrorism financing. The Corporate Transparency Act is a new requirement for all companies, limited liability companies, corporations, or other entities that conduct business in the United States.
Who must report under the Corporate Transparency Act?
Under the Corporate Transparency Act or the CTA, specific domestic and foreign entities who do business within the United States are required to report to the Financial Crimes Enforcement Network or FinCEN. Most common are entities created by filing a document with a state or similar office such as corporations, limited liability companies, limited partnerships, and business trusts.
What entity information is needed to report to the Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act?
The entity must provide a beneficial owner information report to FinCEN. This report requires the entity’s tax identification number, the entity’s principle place of business, a list of the entity’s beneficial owners, and in some cases a list of the entity’s company applicants.
What is a beneficial owner under the Corporate Transparency Act?
Under the Corporate Transparency Act, beneficial owners are defined as individuals who own 25% or more of the entity or individuals who exercise substantial control over the entity. Substantial control is generally defined as individuals who have significant influence over important decisions and actions within the entity. This would include senior officers of the entity.
What information must beneficial owners provide to FinCEN to comply with the Corporate Transparency Act?
All beneficial owners are required to provide their legal name, date of birth, current residential or business address, a unique identifying number from an acceptable identification document such as a driver’s license or passport, and a copy of the identification document.
Under the Corporate Transparency Act, what is a company applicant?
A company applicant is an individual involved in the formation or registration of an entity. A company applicant can include the person who directly files the entity’s formation or registration documents, and anyone who directs or controls the filing on behalf of another person. Often, this could be a lawyer, a paralegal, or professional responsible for handling the paperwork to create or register the entity. If that lawyer or paralegal or other professional hires someone to walk in the documents and file directly with the Secretary of State, that person should also be disclosed as a company applicant.
What information must a company applicant provide to FinCEN to comply with the Corporate Transparency Act?
A company applicant must provide their full legal name, date of birth, current residential or business address, and a unique identifying number from an acceptable identification document such as a driver’s license or passport. Company applicant information is only required to be reported if the entity was formed on or after January 1st 2024.
What entities are exempt from reporting to FinCEN under the Corporate Transparency Act?
While not an exhaustive list, exemptions for filing and reporting under the Corporate Transparency Act include publicly traded companies, banks, financial institutions, government entities, certain inactive entities, and larger operating companies. For example, companies with over 20 full-time employees and/or $5 million in annual revenue and a physical presence within the United States.
Where will reporting companies be required to file with FinCEN under the Corporate Transparency Act?
Under the Corporate Transparency Act, companies created on or before December 31st 2023 have until January 1st 2025 to file with FinCEN. Companies created on or after January 1st 2024 have 90 calendar days from the date of formation to file with FinCEN. Companies that will be created on or after January 1st 2025 will have 30 calendar days from the date of formation to file with FinCEN.
What happens if you do not comply with the Corporate Transparency Act by filing the requisite forms with FinCEN?
If you fail to report to FinCEN before the required deadline, FinCEN could assess a $500 a day up to $10,000 penalty and potentially two years imprisonment.
Is the information reported to FinCEN under the Corporate Transparency Act a public record?
Under the Corporate Transparency Act any information reported to FinCEN is confidential and is stored in a secure database by FinCEN. Only certain agencies or entities will have access to the information. The information will be given out on a consent basis for law enforcement purposes only.