Understanding the Corporate Transparency Act (CTA)

February 2024

By Caleb Knight and Elizabeth King

The Corporate Transparency Act (CTA), a significant piece of legislation passed as part of the National Defense Authorization Act for Fiscal Year 2021. The CTA became effective on January 1, 2024, and introduces new reporting requirements for small businesses. The CTA aims to enhance transparency in business ownership and marks a pivotal change in the U.S. approach to combating money laundering, terrorist financing, and other illicit activities by requiring the disclosure of beneficial ownership information.

Key Provisions of the CTA:

  1. Beneficial Ownership Reporting: The CTA mandates that certain U.S. and foreign entities report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). A beneficial owner is defined as any individual who, directly or indirectly, exercises substantial control over the entity or owns or controls at least 25% of the ownership interests of the entity.
  2. Affected Entities: Limited liability companies, corporations, and other entities created by filing a document with a particular state will have to file a Beneficial Ownership Information (“BOI”) Report. The Act exempts several types of entities, including publicly traded companies, certain regulated entities (banks, credit unions, investment companies, etc.), and entities that employ more than 20 full-time employees in the United States, have filed federal income tax returns demonstrating more than $5 million in gross receipts or sales, and have an operating presence at a physical office within the U.S.
  3. Reporting Requirements: Affected entities are required to provide FinCEN with the following information for each beneficial owner: name, birth date, home address, and an identification number (such as a driver’s license or passport number), along with an image of the document containing the identification number.
  4. Compliance Deadlines and Procedures: Entities formed before the enactment of the CTA will have a grace period to comply, while new entities formed after the implementation of the rules will need to report at the time of formation.
  5. Penalties for Non-Compliance: Failure to report beneficial ownership information or providing false information can result in civil or criminal penalties, including fines and potential imprisonment.

Implications for Your Business:

The CTA represents a shift towards greater corporate transparency and requires careful attention to compliance. It is crucial for affected entities to understand their reporting obligations, prepare to collect the necessary information, and stay informed about the development of the implementing regulations.

How We Can Help:

Our firm is closely monitoring the development of the CTA and stands ready to assist your business in navigating these new requirements. We can provide guidance on determining whether your business is subject to the CTA, assist in gathering the required information, and ensure that your reporting procedures are compliant.

For further information or to discuss how the CTA may impact your business specifically, please contact us at 304.347.4242.

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