What You Need to Know About the Corporate Transparency Act
As the corporate world grows and evolves it also becomes more complex. To deal with this increase in complexity, consumers, stakeholders, and even government officials have sought more transparency in corporate ownership structures. Over the last couple of years, members of Congress have worked to increase transparency, culminating in the Corporate Transparency Act (“CTA”), which was passed as part of the Anti-Money Laundering Act of 2020 that can be found within H.R. 6395. The CTA prevents people from exploiting U.S. domiciled limited liability companies (“LLC”) and corporations for criminal gain and to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, corruption, and other illicit activity. The CTA creates a database of beneficial owners through the Financial Crimes Enforcement Network (“FinCEN”), a division of the US Department of the Treasury, that allows interested parties to track and monitor corporate ownership. Below we break down the basics of the CTA and what these regulations mean for your business.
Effective on January 1, 2024, all domestic corporations, LLCs, and other similar entities formed in a U.S. state or under the law of a foreign country and registered to do business in the U.S. will need to report the company and its beneficial owners. There are 23 types of entities that are exempt from the reporting requirement including large operating companies, financial institutions, and investment companies. A full list can be found on the Beneficial Ownership Information Reporting Frequently Asked Questions page.
Reporting Requirements
The reporting company just provide to FinCEN the company's legal name, any trade names, current street address, its jurisdiction of formation or registration, and its taxpayer identification number; it will also need to report its beneficial owner and company applicants. A beneficial owner includes anyone who, directly or indirectly, has control over the company or owns or controls 25% of the ownership interest of a reporting company. There can be up to two individuals who qualify as company applicants. either the person who directly files the document that creates or registers the reporting company or the person who is responsible for directing or controlling the filing. This could include the company's legal counsel, such as FinTech Law. Both the beneficial owner and the company applicants must report their name, date of birth, address, a unique identifying number (e.g., driver's license number), and the name of the state or jurisdiction that issued that document.
Compliance Date
Any reporting company that was established before January 1, 2024, will have a year to report the required information. Any reporting company that is established on or after January 1, 2024, will need to supply the information within 30 days. Any changes will need to be reported within 30 days as well.
Access to Reported Information
FinCEN is currently working on the database where this information will be stored and the form to be filled out by the reporting company. Currently, the CTA has authorized the release of this information under six circumstances, which mostly include law enforcement activities and banking due diligence. FinCEN is in the process of developing the policies and procedures that will govern access and handing of beneficial ownership information. All information will be stored in a secure and confidential IT system that will be cloud-based and will meet the highest Federal Information Security Modernization Act level.
CTA Compliance from FinTech Law
If you need clarification or preparation assistance for the CTA, FinTech Law can help. FinTech's team of experienced legal professionals can make sure you are prepared for the law and any surprises that may arise with it. Don't hesitate to contact us.