The Corporate Transparency Act was approved by Congress in January 2021, and is a new federal law requiring many business entities to identify to the Treasury Department the individuals who own or control a 25 percent or greater interest in the entity or who otherwise exercise substantial control over the entity. Starting in 2024 business owners will need to file their beneficial ownership information by the end of the year 2024.
Below are some key points regarding the law and how to follow it.
- Existing companies: Reporting companies created or registered to do business in the United States before January 1, 2024, must file by January 1, 2025.
- Newly created or registered companies: Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective.
- Not an Annual Report: Beneficial ownership information reporting is not an annual requirement. A report only needs to be submitted once, unless the filer needs to update or correct information. Generally, reporting companies must provide four pieces of information about each beneficial owner:
- name;
- date of birth;
- address; and
- the identifying number and issuer from either a non-expired U.S. driver’s license, a non-expired U.S. passport, or a non-expired identification document issued by a State (including a U.S. territory or possession), local government, or Indian tribe. If none of those documents exist, a non-expired foreign passport can be used. An image of the document must also be submitted.
- Purpose: The CTA is designed to improve financial transparency and combat illicit activities by requiring specific business entities to report detailed information about their beneficial owners to the government.
- Requirement: Businesses must disclose the identities of their beneficial owners, aiming to prevent anonymous shell companies from facilitating financial crimes.
- Entities Affected: The law targets smaller entities, particularly those not already subject to certain financial reporting requirements, to close loopholes used in money laundering.
- Exemptions: Larger corporations and entities subject to existing regulatory oversight are generally exempt, focusing the law’s impact on smaller, privately held companies.
- Information Required: Businesses must report personal details of their beneficial owners, such as names, addresses, and identification numbers, to aid in law enforcement investigations.
- Confidentiality: The CTA ensures that collected ownership information is kept confidential and accessible only to authorized government and financial institutions under strict conditions.
- Penalties: Non-compliance with the CTA can result in severe penalties, including substantial fines and potential imprisonment for those who knowingly fail to report accurate information.
- Implementation: The responsibility for enforcing the CTA falls to the Treasury Department, which will collect, maintain, and ensure the security of the reported ownership information.
- Advisors’ Role: Business advisors need to understand the CTA to guide their clients. Advisors need to understand the specific requirements, exemptions, and implications of the law to ensure that businesses comply with the new federal regulations, avoiding potential fines or legal issues. This involves keeping up to date with the latest developments and providing strategic advice on maintaining transparency and legal compliance.
- Strategic Importance: The law has significant implications for business transparency and legal compliance. By mandating the disclosure of beneficial ownership information, the law aims to deter financial crimes and improve trust in the corporate sector, thereby affecting strategic decision-making and operational practices among businesses. Advisors and companies must adapt to these regulations to ensure compliance, reflecting the broader impact on corporate governance and accountability.
For more info check out these links.
https://home.treasury.gov/news/press-releases/jy2015
https://www.brookspierce.com/publication-the-new-federal-law-on-corporate-transparency