RBS News

CORPORATE TRANSPARENCY ACT

WHAT YOU NEED TO KNOW ABOUT THE CORPORATE TRANSPARENCY ACT

On January 1, 2024, the Corporate Transparency Act (“CTA”) went into effect.  Originally enacted by Congress in 2021 as part of the National Defense Authorization Act, Congress’ goal in enacting this legislation is to make it more difficult for corporate criminals to use shell companies in order to benefit from such illegal activities as tax fraud, money laundering and financing of terrorist activities.   Under the Beneficial Ownership Information Reporting Rule of the CTA, millions of small businesses across the country will now be required to report information about their beneficial owners to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). 

Which companies are required to submit a report?

Corporations, limited liability companies and other companies created by filing documents with the Secretary of State or any similar office will be required to report their beneficial owners.  Congress has created twenty-three (23) exceptions that are exempt from reporting, including governmental authorities, banks, public utilities, insurance companies, and accounting firms.  Large operating companies are also not required to report.  However, in general, most non-publicly traded entities with fewer than 20 full time employees and less than $5,000,000 in gross receipts or sales will be required to file a report.

What information is required to be reported?

Each reporting company will need to provide the following:

• Full legal name;
• Any trade names or “doing business as” names;
• Complete US address; and
• Taxpayer identification number (EIN/SSN/ITIN as appropriate)

Who is a beneficial owner?

A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company.

Each beneficial owner will need to provide the following:

• Name, birthdate, residential address; and
• A clear copy of U.S. passport or state driver’s license containing a unique identifying number of the individual.

Entities created or registered on or after January 1, 2024 will also need to provide information concerning company applicants, i.e., the individual who directly filed the document creating the company with the Secretary of State and/or the individual primarily responsible for directing or controlling the filing or creation of the registration document.

What are the penalties for failure to report?

Willful failure to report complete and accurate beneficial ownership information may result in civil and/or criminal penalties.  Those found to be in violation of the requirements may face civil penalties of up to $500 per day that the violation continues or criminal penalties including imprisonment and additional fines.  Senior officers of an entity that fails to file a required report may also be held personally accountable for the failure to report.

Filing deadlines

Entities created prior to January 1, 2024 have until January 1, 2025 to electronically submit their report and required information.  Entities created January 1, 2024 through December 31, 2024 must electronically submit their report and required information with 90 days.  Entities created on or after January 1, 2025 will have 30 days to submit.

If you have specific questions or need assistance compiling and filing a Beneficial Owners Information Report, please do not hesitate to contact Kimberly Basta at kbasta@rbslaw.com.