In business today, the term “transparency” has become more than just the latest buzzword. It provides the basis for building trust. And whether it’s clients, investors, employees, or strategic partners, people will always choose to do business with those whom they trust. Transparency gives them this confidence. For this and other reasons, it has become ‘transparent’ to business owners that embracing transparency is no longer optional. It’s mandatory—not only for long-term success, but also now for regulatory compliance.
The Corporate Transparency Act (CTA) became effective January 1, 2024, for the purpose of improving transparency to prevent illegal activities, such as money laundering, tax fraud, and terrorism financing. It also helps align the U.S. with international transparency efforts to combat global financial crimes and to create a more secure financial environment. In an effort to do so, the CTA’s goal is to capture additional ownership information for specific U.S. businesses operating in or accessing the country’s market. Simply, it is intended to create a clearer picture of who truly owns and benefits from companies operating in the U.S. Under the new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
As with any new legislation, business owners have questions. To that end, we’ve compiled the following FAQs to help you better understand your compliance obligations and requirements.
What is beneficial ownership?
According to the CTA, an individual qualifies as a beneficial owner if they directly or indirectly have a significant ownership stake in a company. This is determined if the person either:
- exercises substantial control over the reporting company or
- owns or controls at least 25% of the reporting company’s ownership interests.
What is substantial control?
“Substantial control” means individuals who:
- serve as a senior officer of the reporting company,
- have appointment or removal authority over the senior officers and board of directors,
- can direct, determine, or have substantial influence over important decisions within the company, and
- have any other type of substantial control over the company.
What information needs to be reported?
All reporting companies must provide their legal name and any trade name or “doing business as” name, their current U.S. address (or for foreign-based companies, their U.S. operational location), their taxpayer identification number, beneficial owners, and the jurisdiction where the business was formed or registered.
Additionally, businesses registered or established post-January 1, 2024, must also provide information regarding its company applicants (individuals who are primarily responsible for filing the documents that create or register a company), including owners’ and applicants’ names, addresses, birthdays, and identification numbers (such as a license or passport number). Businesses established before that date can omit information regarding company applicants.
Does the CTA require annual reports?
Not at this time.
Who needs to comply?
Two types of reporting companies will be required to submit BOI reports: (1) domestic reporting companies, including LLCs, corporations, and other entities formed through filing with a Secretary of State or a comparable office in the U.S. and (2) foreign reporting companies that are registered to conduct business in the United States through filing with a Secretary of State or an equivalent office.
How can reporting companies comply with the Corporate Transparency Act?
Reporting companies should gather the required information as soon as possible, complete the BOI Report, request help from a third-party if needed, and be sure to file the report before the deadline.
What are the filing deadlines?
- For reporting companies established before January 1, 2024, the filing deadline is January 1, 2025.
- Reporting companies created between January 1, 2024, and January 1, 2025 have 90 days to file from either the actual notice of formation or public announcement, whichever comes first.
- Reporting companies established on or after January 1, 2025, will have 30 days from notification or public announcement of their formation to submit their first report to FinCEN.
What about updates or corrections?
Reporting companies must submit any corrections or updates to previously filed information within 30 days.
What are the consequences of non-compliance?
A person who willfully violates beneficial ownership reporting requirements may be subject to civil penalties of up to $591 for each day that the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include the following: willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
Are there any business benefits to the CTA?
Compliance under the CTA is about more than just filing another report and avoiding penalties. In fact, there are real business benefits to doing so. Increasing trust and transparency with stakeholders is always beneficial for a company’s reputation. With clear ownership information available, investors can feel more secure about putting money into the company, while partners can more easily rest assured that their interests are protected. For the business, it can also more effectively vet potential partners and customers by accessing information about their ownership structures. Further, by identifying beneficial owners, the CTA helps businesses avoid any association with, or perception of, criminal activities, protecting their reputation and credibility.
Compliance with the CTA will help you stay ahead of the curve and avoid potential penalties. Companies should take the necessary steps now to avoid complications. Have any other questions? We can help.
At Agile Planners, we can guide you in these regulatory matters, so you can leave the guesswork behind. We provide strategic guidance and outsourced CFO services to companies of all sizes. We can help provide the strategy your organization needs for the growth you want. We understand that no two organizations are the same. And with our experience and financial knowledge, we can help develop the right strategic plan for your business to grow and reach its goals. Simply, we’ll be your trusted partner, so you can focus on running your organization. Contact us today to learn more about how we can help.
