Understanding the Corporate Transparency Act

The Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, marks a significant shift in U.S. business law. Designed to combat illicit financial activities such as money laundering, tax evasion, and terrorism financing, the CTA introduces new requirements for many U.S. businesses to disclose their beneficial ownership information. For business owners and corporate executives, understanding the implications of the CTA is crucial for ensuring compliance and avoiding penalties.

Call Turner Business Solutions at (316) 285-0125 if you need assistance registering your business with the FinCEN. You can also schedule a free consultation online.

What is the Corporate Transparency Act?

The CTA mandates that most U.S. companies provide the Financial Crimes Enforcement Network (FinCEN) with detailed information about their beneficial owners—those individuals who directly or indirectly own or control at least 25% of a company or who exercise significant control over the business. The purpose of this law is to prevent the use of anonymous shell companies that criminals have historically exploited to obscure ownership and conceal illegal activities.

Who is Affected?

The CTA primarily impacts small and closely held businesses. Large corporations, which are already subject to similar transparency requirements, are generally exempt. Specifically, businesses that must report their beneficial ownership information include:

• Corporations

  
  

• Limited liability companies (LLCs)

  
  

• Other similar entities created by filing with a U.S. state or tribal authority

  
  

However, there are some exemptions. Companies that fall under certain categories—such as publicly traded entities, banks, credit unions, and other heavily regulated businesses—are not required to report under the CTA.

Key Reporting Requirements

1. Beneficial Owner Information: Companies must disclose information about each beneficial owner, including their full legal name, date of birth, current residential address, and a unique identifying number from an official government document (e.g., driver’s license or passport).

   
   

2. Initial Filing: Newly formed companies will need to submit beneficial ownership information at the time of formation, while existing businesses must comply within two years of the regulations coming into effect.

   
   

3. Updates: If beneficial ownership changes (e.g., due to a sale or transfer of shares), companies must update FinCEN within 30 days of the change.

   
   

Compliance and Penalties

The CTA’s reporting requirements are designed to increase transparency, but businesses should be aware of the serious consequences for non-compliance. Failing to file, providing false information, or willfully omitting critical data could result in:

• Civil penalties up to $500 per day for each day a violation continues

  
  

• Criminal penalties, including fines up to $10,000 and imprisonment for up to two years

  
  

Preparing for the Corporate Transparency Act

Businesses should take proactive steps to ensure they comply with the CTA when it fully comes into effect. Some actions include:

• Identifying beneficial owners: Work closely with your legal and accounting teams to determine which individuals qualify as beneficial owners under the CTA’s definitions.

  
  

• Organizing documentation: Make sure the required identifying information (e.g., government-issued identification numbers) is readily available for submission to FinCEN.

  
  

• Implementing tracking systems: Develop internal processes for tracking ownership changes, so you can report updates to FinCEN within the required time frame.

  
  

• Staying informed: The final details of the CTA are still being fine-tuned, so businesses should stay updated on changes in the law or regulations. Working with legal professionals can help you navigate any nuances that may arise.

  
  

The Broader Impacts of the CTA

The CTA represents a major step toward greater financial transparency, both domestically and internationally. It aligns the U.S. with global efforts to improve corporate accountability, particularly as governments crack down on financial crimes. While the reporting requirements may seem burdensome to some businesses, the long-term goal is to foster a cleaner and more transparent corporate environment.

Conclusion

The Corporate Transparency Act will significantly change how businesses report ownership information in the United States. While compliance with the new regulations may seem daunting, proper preparation will ensure that your company is on the right side of the law. With increased scrutiny on corporate ownership, taking the necessary steps to disclose beneficial ownership information could protect your business from severe penalties and help contribute to a more transparent corporate landscape.

By embracing these new requirements and staying compliant, businesses can safeguard their operations and contribute to a safer financial ecosystem.

Call Turner Business Solutions at (316) 285-0125 if you need assistance registering your business with the FinCEN. You can also schedule a free consultation online.