Introducing the Corporate Transparency Act (CTA), a game-changing law implemented in the United States to crack down on sneaky activities carried out through shell companies. The CTA’s main goal is to shine a bright light on corporate operations by making certain businesses spill the beans about their secret owners to the Financial Crimes Enforcement Network (FinCEN), a superhero government agency fighting financial crimes.
While the CTA brings some much-needed muscle to tackle shady practices, it also brings up concerns about privacy, security, and the costs of following the rules for business owners. In this article, we’ll dive into the ins and outs of the CTA, explore its impact, and show you how the friendly folks at Legacy Counsel can lend a helping hand in navigating this new regulatory maze.
But first, what is a beneficial owner? An owner is someone who owns or controls at least 25% of a business entity or has substantial power over it. An owner does not include someone who acts for another person.
The CTA applies to corporations, LLCs, and other entities that are created or registered in the U.S. unless they are big, regulated, or exempt. The criteria one must meet to be exempt from the CTA include:
- Having more than 20 full-time employees in the United States;
- Having more than $5 million in gross receipts or sales in the previous year; or
- Being regulated by certain federal agencies, such as banks, insurance companies, public companies, and charities.
Business entities must report the name, birth date, address, and ID number of each owner, and their own information to FinCEN starting January 1, 2024, or when they are formed or registered. They must also update the information within a year of any change.
FinCEN will keep the information in a secure and private database and will only share the information with authorized government agencies and financial institutions for law enforcement, national security, or regulatory purposes.
What are the penalties for non-compliance?
Business entities that fail to report or update their beneficial ownership information, or that provide false or fraudulent information, may face civil penalties of up to $500 per day for each day of violation, up to a maximum of $10,000 per violation. They may also face criminal penalties of up to two years imprisonment.
Beneficial owners who provide false or fraudulent information may face civil penalties of up to $10,000 per violation and criminal penalties of up to two years imprisonment.
Additionally, any person who knowingly discloses or uses beneficial ownership information in an unauthorized manner may face civil penalties of up to $250 per violation and criminal penalties of up to five years imprisonment.
Implications
The CTA represents a major shift in the U.S. approach to corporate transparency and accountability. It is intended to provide law enforcement with valuable information for combating financial crimes and protecting national security. However, it also raises concerns about privacy, security and compliance costs for business owners. The CTA is expected to have far-reaching effects on the U.S. business landscape and may influence similar initiatives in other jurisdictions.
At Legacy Counsel, we can help you navigate the CTA and FinCEN regulations. Feel free to schedule a 15-minute free call if you have any further questions or would like to gain more insight into this matter.
