Corporate Transparency Act: New Severe Law that Affects U.S. LLCs and Corporations

If you own or want to start a small business in the United States, and you don’t want to go jail or pay a hefty fine, then you need to know about a new law that recently took effect. The law is called the Corporate Transparency Act (or the CTA). It will affect the over 30 million businesses that currently exist and the nearly 4 million new businesses that will be formed each year. 

What are some key points of the CTA? I’ll give you 10 of them. 

1 – CTA’s Purpose
The CTA was enacted (1) to prevent the misuse of U.S. entities for criminal purposes and (2) to help law enforcement identify and prevent criminal activity, for example, money laundering.

2 – Effective Date
The effective date of the CTA is January 1, 2024. Thus, after this date, businesses must comply with the law. 

3 – Reporting Companies
Under the CTA, reporting companies are defined as

• domestic entities (like LLCs and corporations) that are created by filing paperwork with a U.S. state’s secretary of state or similar office; and
• entities formed in countries outside of the U.S. that are registered in the US by filing paperwork with a secretary of state or similar office.

Reporting companies are required to file a report with the U.S. Department of the Treasury, specifically the Financial Crimes Enforcement Network (otherwise known as FinCEN). This report is called a beneficial ownership information report (or a BOI report). There are certain companies, like nonprofits and insurance companies, that are not considered to be reporting companies and are exempt from the reporting requirement. 

4 – Reporting Requirements
Reporting companies must submit to FinCEN (1) information about the company, (2) personal information about its beneficial owners, and (3) personal information about the company applicants. Instead of providing personal information, beneficial owners and company applicants can alternatively use an identifying number assigned by FinCEN. 

5 – Beneficial Owners
A beneficial owner is an individual who either (1) owns or controls at least 25% of the reporting company or (2) exercises substantial control over a reporting company. While some exemptions apply, information about the beneficial owners must be disclosed in the BOI report. 

6 – Company Applicants
Information about the company applicant (which according to the CTA includes the individuals who file the paperwork to create/register an entity and those who direct the filing) must also be in the BOI report. It’s important to note that entities that were formed or registered in the US before January 1, 2024 don’t need to provide information about company applicants. 

7 – Information Access
Information reported under the CTA is not publicly available and can only be accessed by certain governmental agencies (for example, federal law enforcement agencies) and certain financial institutions. 

8 – Reporting Deadlines
The reporting deadline for a reporting company depends on the date that the entity was formed or registered in the US. 

• Existing Entities: Entities formed or registered in the United States before January 1, 2024 must submit BOI reports by January 1, 2025.
  
•  2024 Entities: Entities formed or registered in the United States between January 1, 2024 and December 31, 2024 must submit BOI reports within 90 days of formation or registration of the entity. So for example, if you form a new LLC in New York on January 15, 2024, you’ll have until April 14, 2024 to file the report.
• 2025 Entities: Entities formed or registered in the United States after January 1, 2025 have 30 days to submit their report. 
• Inaccurate Info: If a reporting company provides inaccurate information in a BOI report, then the reporting company has 30 days from the date they become aware of the mistake to file the correct information. 
• Updated Info: After this, the only time a reporting company needs to file an updated BOI report is if the information provided in a previously submitted report has changed. The companies will have up to 30 days after the change has occurred to report those changes.

9 – Severe Penalties
Intentionally providing false information or failing to report complete information to FinCEN can result in fines up to $10,000 and up to 2 years of jail time. 

10 – No Filing Fee 
There is no filing fee to file a BOI report with FinCEN. 

To ensure compliance and avoid penalties, reporting companies and beneficial owners must understand the CTA’s requirements and work with legal professionals if needed. 

If you’d like guidance on complying with the CTA on your own, click here. If you’d like for us to complete the report for you, you can email us at info@jllaw.net or call us at 347-946-0597.