What is the Corporate Transparency Act (CTA)? Learn what the CTA is, what’s required, and its implications. Prepare your company!
At AC Law, we constantly keep up with changes to rules and regulations that may affect our clients. We have been investigating a new law that will require reporting of foreign owners of U.S. companies. The findings are important and need careful watch over the coming months.
What is The Corporate Transparency Act (CTA)?
The Corporate Transparency Act has been in motion for more than a decade. Congress recently passed it as part of the National Defense Authorization Act.
This new act was enacted to create transparency between entity ownership and the government. The CTA will require certain corporations and limited liability companies to report their direct and indirect beneficial owners (i.e., at least 25% ownership or substantial control over a reporting company) to the U.S. Department of Treasury. A reporting company is a corporation, limited liability company, or other similar entity registered to do business in the United States.
Corporate Transparency Act Exemptions
There are exemptions to a “reporting company.” The CTA exemptions apply to companies that:
- Employ at least 20 full-time US employees
- Has over $5M in annual gross receipts/sales
- Operate physical presence in the U.S.
- Are already subject to some government oversight, such as publicly-traded companies, banks, and investment advisers
Corporate Transparency Act Requirements
The CTA will require that reporting companies provide a report to the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCEN”). The report identifies each applicant and human beneficial owner who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (a) exercises substantial control over the company or (b) owns or controls at least 25 percent of the ownership interest.
The information required in the report includes:
- Full legal name
- Date of birth
- Current residential or business street address
- A unique identification number from a driver’s license or passport
The information reported is not public. Instead, it is held in the FinCEN database and will be accessible only to certain governmental agencies.
When Will the Reporting Begin?
The CTA was enacted on January 1, 2021, but will not affect until January 1, 2022. The latter is considered the effective date and will govern the filing of the reports under the CTA.
A company formed after the effective date must report the ownership information at the time of formation.
A reporting company formed before the effective date has two years to submit a report to FinCEN. If there are changes in the ownership structure, the reporting company has one year to report the updated ownership information to the FinCEN.
Are There Penalties if You Do Not Comply?
If you do not comply with the CTA, you are liable for civil penalties up to $500 per day for each day that the violation continues. The criminal penalties that may occur for the violation can include imprisonment of up to two years and fines up to $10,000.
What Does This Mean for Business Owners?
As the CTA comes into place, business owners need to be aware of the disclosure requirements. This requirement may be burdensome, but it will be even more so if owners do not comply with the reporting requirements of the CTA.
Business owners should prepare for these changes so that they are ready when it comes time to report the necessary information.
If you are confused about the requirements or are unsure whether you are exempt or not, please reach out to a professional that can help you better understand your situation.