What Is the Corporate Transparency Act?
Under the current law, businesses do not have an obligation to publicly disclose and/or maintain the names of their shareholders and beneficial owners in most states, including Delaware. This lack of transparency has contributed to money laundering, tax fraud, terrorist financing, and other illegal acts that threaten our financial system. In view of this, the U.S. Congress passed legislation known as the Corporate Transparency Act (CTA), which is due to take effect on January 1, 2024.
However, most business owners do not know how to prepare and what to do to ensure compliance with the CTA. Our business law attorney at Law Offices of Gretchen Cowen, APC, helps business owners in California navigate the complexities of the CTA and understand its reporting requirements.
Understanding the Corporate Transparency Act (CTA)
The U.S. Congress passed the CTA with the goal of increasing transparency in corporate ownership. Under the law, which becomes effective on January 1, 2024, business entities registered to do business in the U.S. must disclose information relating to their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) -- the bureau of the U.S. Department of Treasury. The information that needs to be disclosed pursuant to the CTA’s reporting requirements includes the beneficial owners’:
Date of birth
Passport, driver’s license, or another distinctive identification number
Under the law, a beneficial owner is any person who directly or indirectly:
exercises “substantial control” over the company subject to the CTA; or
controls or owns 25% or more of the ownership interests of the company.
The term “substantial control” refers to the authority of the individual to make any substantial decisions for the reporting company or appoint/remove senior officers. Companies subject to the CTA must also report to the FinCEN any changes to the information specified above.
Companies subject to the reporting requirements under the CTA include any limited liability companies (LLCs), corporations, and other entities that are:
incorporated, organized, or registered to do business in any state; or
established under the law of a foreign country and registered to do business in the United States.
Thus, virtually any entity established by filing with a Secretary of State or any similar office is subject to the CTA.
The Objectives of the CTA
The main purpose of the Corporate Transparency Act is to protect the financial system of the United States by improving transparency and accountability in corporate ownership. Some of the objectives of the legislation include:
Prevent illicit actors from hiding their identities. The CTA’s reporting requirements are designed to prevent illicit actors from using corporate structures to hide their identities and move money through the financial system.
Combat illegal activities. With access to beneficial ownership information (BOI), law enforcement will be able to combat and prevent illegal activities such as tax fraud, terrorist financing, and money laundering, among others.
Maintain data security. Companies subject to the CTA can maintain data privacy and security when reporting BOI to the FinCEN.
Enhance national security. The legislation is also aimed at helping protect U.S. national security interests by aiding national intelligence agency efforts in identifying and tracking individuals and entities who may potentially pose a risk to our national security.
Despite the clear objectives of the Corporate Transparency Act, many companies across the United States do not understand how the CTA can impact their business. You will want to contact the Law Offices of Gretchen Cowen, APC, and seek legal counsel to determine whether or not your business is subject to the CTA and, if so, how you can ensure your compliance with the reporting requirements.
Preparing for CTA Compliance
If your company is subject to the CTA, it will need to submit a BOI report to the FinCEN to disclose the relevant information about every beneficial owner. With the CTA due to take effect on January 1, 2024, businesses should take the necessary steps to prepare for compliance with the requirements under the legislation. Note, FinCEN cannot accept reports prior to that date.
Businesses existing on January 1, 2024 will need to report no later than December 31, 2024. Businesses formed during 2024 will be required to report within 30 days of formation (unless FinCEN allows an extension). All reporting businesses will need to file renewals within 30 days of any changes in their reports.
These steps may include:
Reviewing your corporate structure. First and foremost, you need to thoroughly review your corporate structure and identify the beneficial owners of your business. This step may require legal assistance from an experienced attorney.
Preparing a beneficial ownership register. After identifying the beneficial owners of your business, you need to prepare a beneficial ownership register that contains the name, date of birth, address, and copy of a distinctive identification number of each beneficial owner (such as a passport or driver’s license).
Developing a compliance program. If your company is subject to the CTA, you will want to develop a compliance program that would outline the policies and procedures for identifying beneficial owners, maintaining a register containing the relevant and up-to-date information about each beneficial owner, submitting BOI reports to FinCEN, and protecting the personal information of each beneficial owner.
Getting legal help. You will want to speak with an experienced attorney to ensure that you have a complete understanding of the CTA and its requirements and ensure your company’s continued compliance with the new law.
Our attorney at Law Offices of Gretchen Cowen, APC, has provided exceptional legal advice to businesses across California for more than two decades. As a sole practitioner, attorney Gretchen Cowen can explain what you can do to ensure your compliance with the CTA.
Make Informed Decisions Every Step of the Way
The CTA is set to affect most businesses across the United States, and the reporting deadlines will arrive before you know it. Failure to comply with the CTA can result in serious penalties, which is why you will want to seek legal counsel. Our attorney at Law Offices of Gretchen Cowen, APC, has the expertise you need to help you make informed decisions and ensure your compliance with the CTA. Start a conversation today.