Since the Corporate Transparency Act (CTA) was enacted into law in 2021 it hasn’t received significant attention outside the legal community. Many businesses remain unfamiliar with CTA’s exact stipulations even though the Financial Crimes Enforcement Network (FinCEN) estimates that its reporting requirements will affect over 32 million business entities.
Failure to comply with these requirements can lead to a maximum penalty ranging from $500 to $10,000 per day and two years of jail time. Therefore, it’s critical to know the regulations associated with CTA and their effect on modern businesses.
*The information contained in this article is for awareness purposes and should not be cited as official legal advice from legal professionals.
What is the Corporate Transparency Act?
The CTA passed Congress on January 1, 2021 and obliges domestic and foreign businesses to report personal identifying information about their beneficial owners and company applicants to FinCEN.
The primary purpose of the CTA is to increase transparency by identifying entities that conceal their business ownership through shell companies or legal structures.
It authorizes FinCEN to collect business information and share it with national security and law enforcement. Thereby, it promotes anti-money laundering activities and protects the United States financial system from illicit activity.
Regulations Associated with the Corporate Transparency Act
According to the Corporate Transparency Act regulations, businesses registered in the US must disclose their private information regarding ownership and control. The companies must submit information to FinCEN for each beneficial owner, senior officer, and control person.
The CTA regulations are associated with small businesses and are not meant for companies with a large number of employees. There are other regulatory bodies to monitor these kinds of businesses.
Moreover, the CTA exempts 23 companies of different types from reporting. Entities like banks, brokers, accounting firms, venture capital advisors, and investment and publicly traded companies. The disclosure information doesn’t apply to:
- An entity with more than 20 full-time employees.
- More than $5,000,000 in sales, as shown on the previous year’s federal income tax return.
- A company with a physical office in the US.
The Corporate Transparency Act’s Effect on Modern Businesses
The CTA will increase complications regarding reporting situations. The requirements are burdensome and will cause privacy concerns among legal entities and from corporate legal departments. It does not state how specific standards will be interpreted or calculated.
The requirements will also be troublesome for companies that don’t qualify as large but have four or more beneficial owners with substantial control of the entity. Check below for reporting requirements and deadlines:
What is a Reporting Company?
A reporting company includes corporations or a limited liability company that is created by filing a document to a tribal authority or state. This can be a domestic or foreign company.
Reporting Requirements and Deadlines
A beneficial owner is an individual who directly or indirectly owns an entity and has no less than 25% share in that entity.
This doesn’t include minors whose parents’ information is reported and nominees, custodians, guardians, or individuals whose right of ownership is through a right of inheritance. The information shared with FinCEN concerning beneficial owners must include the following:
- Full legal name
- Date and jurisdiction of formation
- Business address or current residential address
- A unique identification number from a FinCEN identifier or US-issued passport
- Taxpayer Identification Number (TIN)
In addition, applicants who file applications to form business entities must also report their information, such as a certificate of formation or a certificate of incorporation. Foreign entities must share copies of foreign passports and the business address of their beneficial owners.
Moreover, reporting companies must report the required information after 14 days of formation. Or, if they were in existence prior to the new CTA law, they must report within one year.
The Corporate Transparency Act’s Effect on Entity Management
With changes in the regulatory landscape, it’s easy to lose track of the new legal and tax requirements that come with the CTA.
It can be frustrating to manage legal entities so they comply with both federal and state taxes while needing to remember the due dates for filings. But proper entity management systems reduce the risk of missed deadlines and potential errors.
Increased Need for Organization
With the CTA, you’ll have to comply with multiple regulations across various jurisdictions on forming your entity. But an all-in-one entity management solution designed to help you organize or add new entities and comply with all 50 states will help maintain compliance. That’s filejet!
When it comes to CTA, complying with new regulations and submitting documents and fees to each state will be quite a hassle. But Filejet’s entity management system provides a unified platform to streamline your workflow and automate entity data management and compliance.
It sends automatic reminders around due dates for filing so you never miss the deadline. Also, it gathers and submits documents and pays fees to each state from one platform, saving you time and effort.
Ace Regulation Compliance with Filejet
Although the Corporate Transparency Act is effective as of 2021, the reporting requirements will take some time to finalize. Meanwhile, your business should be prepared to comply with the regulations once they come into effect.
Filejet offers an all-in-one platform to solve all your entity management and compliance needs in multiple jurisdictions. You no longer have to fear missed deadlines. Contact us to schedule a demo.