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Corporate Transparency Act Compliance

The Corporate Transparency Act (CTA), was signed into law in January 2021. This new law is a substantial change in US federal requirements regarding business entity disclosure.

The CTA was created to combat illicit activities and enhance transparency, but unfortunately it imposes reporting obligations on many businesses.

Who is Affected?

The CTA focuses on “reporting companies,” which includes most corporations, limited liability companies (LLCs), and similar entities.

Certain entities are exempt, including publicly traded companies, larger companies with over 20 employees and a physical U.S. office, and entities that have existed for over a year without changing ownership or sending/receiving funds.

Core Requirements for Business Owners Under the CTA:

1. Beneficial Ownership Reporting: Entities are required to report specific information about their “beneficial owners”:

  • A beneficial owner is any individual who exercises substantial control over a company or owns 25% or more of the entity.
  • Required information includes full legal name, date of birth, current residential or business street address, and an identification number (e.g., from a passport or driver’s license).

2. Updated Reporting: If there’s a change in beneficial ownership or if any reported information changes, an update must be submitted within a year.

3. Retention of Records: Companies must maintain a record of the reported beneficial ownership information for five years after the reporting entity ceases to exist or terminates its relationship with the individual.

What Business Owners Need to Consider:

  • Privacy Concerns: While the information collected is intended for law enforcement agencies, there are concerns about data breaches or unauthorized access.
  • Administrative Load: Especially for companies with complex ownership structures, the CTA can introduce significant administrative responsibilities.
  • Penalties for Non-Compliance: There are substantial penalties for failing to comply with reporting requirements or for knowingly submitting false information, including fines and imprisonment.

Steps for Compliance with the CTA:

  1. Determine Applicability: Ensure you understand whether your business falls under the “reporting company” definition and isn’t exempt.
  2. Identify Beneficial Owners: Identify all individuals who have significant control or own a substantial portion of the company.
  3. Gather Necessary Information: Collect the required information for each beneficial owner. 
  4. Stay Updated: Continuously monitor for any changes in beneficial ownership or their details.
  5. Consult Legal Counsel: Due to the complexities and penalties associated with non-compliance, it’s important to consult with an attorney familiar with the CTA.

The CTA introduces new layers of compliance. 

Understanding its requirements and proactively preparing can mitigate challenges for businesses.

 

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