What Is the Corporate Transparency Act? Understand the Basics
The Corporate Transparency Act (CTA) introduces new compliance requirements that add significant complexity for businesses. For mid-market companies that already struggle to maintain entity compliance, adhering to these new regulations may be particularly challenging. Managing annual report filings and business license renewals is already a fraught experience for many – the Act’s beneficial ownership information (BOI) reporting requirements increase administrative demands and add an additional layer of difficulty.
“Other countries have followed similar laws for a long time – we are now catching up with the rest of the world,” said Filejet CEO, Andy White. “Unfortunately, the Act will also be one more pebble in the scale of making business more difficult.”
Luckily, organizations don’t need to shoulder these burdens alone. Filejet’s platform streamlines entity management and automates the beneficial ownership information report (BOIR) filing process, ensuring seamless compliance with the Corporate Transparency Act. In this article, we’ll break down the essentials of the CTA, equipping you with the knowledge and tools needed to navigate the new regulations with confidence and ease.
*The information in this article is for awareness purposes and should not be cited as official legal advice from legal professionals.
Main Takeaways from This Article:
- The CTA, part of the National Defense Authorization Act, mandates domestic and foreign businesses to report personal identifying information about their beneficial owners and company applicants to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
- U.S.-registered businesses must disclose details of ownership and control, including information about each beneficial owner, senior officer, and control person, to FinCEN.
- The Act aims to increase transparency by identifying entities that hide business ownership through shell companies or legal structures, enhancing anti-money laundering efforts, and protecting the U.S. financial system from illicit activities.
- Certain entities, such as banks, brokers, accounting firms, and extensive operating companies, are exempt from CTA reporting requirements.
- Filejet automates filing beneficial ownership information, ensuring compliance with CTA regulations and reducing businesses’ manual filing burden.
What Is the Corporate Transparency Act?
The Corporate Transparency Act is a U.S. federal law enacted to enhance transparency in corporate ownership and combat illicit activities such as money laundering, terrorism financing, and tax evasion.
The CTA requires the beneficial owners of a reporting company to submit identifying information about themselves and their organization to FinCEN.
The key provisions of the CTA include:
- Reporting Requirements: Entities must disclose identifying information about their beneficial owners, including names, dates of birth, addresses, and unique identifying numbers from acceptable identification documents.
- Applicability: The law applies to most corporations, limited liability companies (LLCs), and similar entities formed or registered to do business in the United States. However, there are exemptions for certain types of entities, such as large operating companies, regulated entities, and inactive entities.
- Confidentiality: The beneficial ownership information reported to FinCEN is not publicly accessible and is protected to ensure confidentiality. It is only accessible to authorized government authorities and financial institutions for due diligence purposes.
- Penalties: Failure to comply with the CTA’s reporting requirements can result in significant civil and criminal penalties, including fines and imprisonment.
Overall, the CTA aims to create a more transparent business environment by making it harder for bad actors to conceal their identities behind anonymous shell companies.
What Is a Reporting Company?
As FinCEN outlines, “reporting companies” include any domestic or foreign entity formed by filing a document with a secretary of state or similar office in the U.S.
While that definition may make it sound like “reporting companies” include nearly every U.S. entity type, there are 23exemptions:
- Securities reporting issuers
- Governmental authorities
- Banks
- Credit unions
- Depository institution-holding companies
- Money services businesses
- Brokers or dealers in securities
- Securities exchanges or clearing agents
- Other Exchange Act-registered entities
- Investment companies or investment advisers
- Venture capital fund advisers
- Insurance companies
- State-licensed insurance producers
- Commodity Exchange Act registered entities
- Accounting firms
- Public utilities
- Financial market utilities
- Pooled investment vehicles
- Tax-exempt entities
- Entities assisting a tax-exempt entity
- Large operating companies
- Subsidiaries of certain exempt entities
- Inactive entities
For more information about what qualifies as a reporting company, refer to Part C of FinCEN’s BOI reporting FAQs.
What Is a Beneficial Owner?
In the simplest terms, if you:
- Have substantial control over a reporting company or
- Own or control at least a quarter of the ownership interests of a reporting company
… you are a beneficial owner.
In this context, “substantial control” includes, but is not limited to, senior officers (i.e., anyone in the C-suite), anyone who can remove or appoint a senior officer, and anyone who makes important decisions about a business, its finances, and its structure.
“Ownership interests” include, but are not limited to, any individual with equity, stock, or voting rights, anyone with capital or profit interest, anyone with convertible instruments, and anyone with options or privilege to buy or sell any items listed above.
Any individual who exercises substantial control over a reporting company must submit their personal identifying information as part of their BOIR filing.
It isn’t uncommon for an organization to have more than one beneficial owner. If your organization has multiple beneficial owners, each must submit their information to FinCEN.
Note: Submitting fraudulent beneficial ownership information can lead to severe penalties, including fines up to $10,000 and potential imprisonment.
How to Determine Your Reporting Status
To demystify the process, FinCEN released a Small Entity Compliance Guide that outlines – in thorough detail – what a reporting company is and who beneficial owners are.
But you’re in luck if you don’t have the bandwidth to read the entire guide right now: Filejet offers a tool to help you determine whether your organization is a reporting company.
To use the tool, simply enter your information and respond to some yes/no questions. The tool will let you know if your organization needs to file based on your answers.
What Beneficial Ownership Information Needs to Be Reported?
Per FinCEN’s guidance, each BOIR must include the following information:
It should also include the following information:
- Identification Numbers: Valid identification numbers from a driver’s license, passport, or government-issued document.
- Copy of the Identification Document: A legible, unexpired copy containing the identification number.
These details are crucial for creating a comprehensive database that enhances transparency and prevents financial crimes. Businesses must ensure the accuracy and completeness of the information they submit to avoid potential penalties. This process helps authorities track and identify individuals who may attempt to hide their ownership or control of companies, ensuring a more transparent and secure financial system.
How To Report Beneficial Ownership Information
Step 1: Gather Required Beneficial Ownership Information
The first step is to collect the necessary details about each beneficial owner and company applicant, including:
- Full Legal Name: Ensure you have the exact legal name as it appears on official documents.
- Date of Birth: Accurate date of birth for each individual.
- Residential or Business Address: Current address where the individual resides or conducts business.
- Identifying Number: A driver’s license, passport, or government-issued identification number.
It’s crucial to verify the accuracy of this information to avoid any discrepancies during the submission process.
Step 2: Submit Information through FinCEN
BOIR filings may be electronically submitted through FinCEN’s online portal. This portal simplifies the submission process and ensures your data is securely transmitted. To use the portal:
- Create an Account: Register for an account on the FinCEN portal.
- Fill in the Forms: Enter the required information into the designated fields.
- Review and Submit: Double-check all entered information for accuracy and completeness before submitting.
Step 3: Ensure Accuracy & Completeness
Accuracy and completeness are paramount when submitting beneficial ownership information. Only accurate or complete information can lead to penalties and non-compliance issues. It’s essential to:
- Double-check Information: Revisit all details to ensure they match official documents.
- Keep Records: Maintain copies of all submitted information for future reference.
- Stay Updated: Be aware of any updates or changes in FinCEN reporting requirements.
Step 4: Automate & Manage Filings with Filejet
To streamline the process and ensure compliance with the Corporate Transparency Act, consider using Filejet. Filejet can assist by:
- Automating Filings: Simplifying the submission process with automation tools.
- Managing Compliance: Keeping track of all filing deadlines and requirements.
- Reducing Errors: Minimizing the risk of errors through automated checks and balances.
By leveraging Filejet, businesses can ensure they meet all regulatory requirements efficiently and accurately, reducing the burden of manual filing and the risk of non-compliance.
What Is the Report Filing Deadline for the CTA?
The Corporate Transparency Act sets specific deadlines for reporting companies to file their beneficial ownership information with FinCEN, depending on when the founders created or registered the company to do business in the United States.
For Existing Companies:
Reporting companies created or registered to do business in the United States before January 1, 2024, have until January 1, 2025, to file their initial report. This one-year window provides these businesses ample time to gather the required information and comply with the new regulations. These companies must begin preparing as soon as possible to ensure they meet the deadline and avoid potential penalties.
For Newly Created or Registered Companies:
Reporting companies created or registered to do business in the United States on or after January 1, 2024, have a different filing timeline. These companies must file their beneficial ownership information within 90 calendar days after receiving actual or public notice that their company’s creation or registration is effective. This 90-day period is relatively short, so newly formed businesses must act promptly to collect and submit the necessary information to remain compliant.
Consequences of Missing the Deadline:
Failing to meet the filing deadlines the CTA sets can result in significant penalties. Businesses that fail to submit their beneficial ownership information on time may face civil or criminal penalties, including fines and potential legal action. The severity of these penalties underscores the importance of understanding and adhering to the filing requirements.
Preparation Tips:
- Start Early: Gather the required information well before the deadline, including identifying all beneficial owners, senior officers, and control persons associated with the company.
- Stay Informed: Monitor changes and updates to CTA regulations to ensure your business remains compliant.
- Consult Professionals: Consider seeking advice from legal or compliance professionals who can guide the reporting process and help ensure all necessary information is accurately submitted.
- Maintain Records: Keep detailed records of all submitted information and any correspondence with FinCEN. This documentation can be crucial in case of any discrepancies or follow-up inquiries.
How Often Does Information Need to be Submitted?
You must file your BOIR annually. Note that if information about a reporting company or beneficial owner(s) changes, an updated report must be filed. You do not need to submit a fee with the report.
Who Is Exempt from CTA Reporting?
23 types of companies are exempt from reporting, including banks, brokers, accounting firms, venture capital advisors, and investment and publicly traded companies.
Additionally, the disclosure information doesn’t apply to any “large operating company” if it has:
- More than 20 full-time employees in the U.S.
- More than $5,000,000 in sales, as shown on the previous year’s federal income tax return.
- A physical office in the U.S.
Penalties & Compliance Enforcement
Civil and criminal penalties exist for non-compliance. If you fail to accurately or entirely report information about your reporting company or beneficial owners, you could face the following:
- A potential fine of $591 per day (up to $10,000) and/or
- Imprisonment for up to two years
So, while Filejet has always encouraged clients to take legal compliance seriously, we also can’t stress strongly enough how important it is that your organization complies with the CTA.
What Role Does Entity Management Play Here?
If you feel intimidated by the CTA, we get it. BOI reporting requirements are somewhat convoluted, and updates are still ongoing. Maintaining compliance with yet another jurisdiction adds an extra wrinkle to doing business.
Aside from determining whether you need to file, compiling all of the required information may seem like a heavy lift – if your entity information isn’t in proper order.
If your organization manages its entities manually – with spreadsheets and calendar reminders or with a traditional registered agent – it may be challenging to adhere to the CTA consistently. Because you must file a report with FinCEN any time there is a change to your organization or beneficial owner(s), gathering the correct information may be challenging if no single source of truth exists (and it can’t with a manual process).
However, filing your BOIR will be easy if your entities are properly maintained – and automated software can help.
Simplify Compliance with Filejet
Filejet’s infrastructure evolves with changing rules and regulations, ensuring it can effectively handle your BOIR filing. Filejet will automatically file your organization’s BOIR for you—just like it does with annual reports, DBAs, business licenses, and other filings. As long as all of your information is up to date in the portal (and we will notify you if it’s not), complying with the CTA will be a proverbial walk in the park for your organization.
The Corporate Transparency Act presents new compliance challenges, but with Filejet, these challenges are easily manageable. Our comprehensive solution keeps your filings up to date and adapts to any regulatory changes, giving you peace of mind. With Filejet, you can focus on what truly matters—growing your business—while we handle the compliance complexities.
Ready to simplify your compliance process? Schedule a demo with Filejet today and discover how we can streamline your BOIR filings and more. Don’t let regulatory requirements slow you down—let Filejet be your trusted partner in compliance.
