Compliance, Outside Counsel, Start Ups

What You Need to Know About the Corporate Transparency Act

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As of January 1, 2024, millions of small businesses across the U.S. are now required to meet new reporting requirements implemented by the Corporate Transparency Act. Many startups may or may not be aware of these new requirements, but the penalties for noncompliance can be significant. Let’s talk about this new law, what it entails, and what you need to know about complying with it.

what is the corporate transparency act?

The Corporate Transparency Act, or CTA, is a federal law enacted in January 2021 (and which took effect at the beginning of 2024). Its main purpose is to modernize the government’s efforts against money laundering and terrorist financing activities by establishing beneficial ownership reporting requirements for certain corporations, LLCs, and other similar entities. The CTA received bipartisan support and aims to reduce the incidence of anonymous shell companies that could be used for illegal activities due to the absence of information about their true owners.

Reporting Requirements of the CTA

The CTA requires certain businesses to submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This report provides detailed information about the beneficial owners of the reporting companies.

What Needs to Be Reported?

Reporting companies must provide information about their beneficial owners. This includes names, addresses, birthdays, identification numbers, and the jurisdiction of the documents. This level of detail ensures full transparency about who owns and controls the company.

Who Classifies as a Beneficial Owner?

A beneficial owner is an individual who directly or indirectly has a significant ownership stake in a company, exercises substantial control over the company, or owns at least 25% of the company’s shares. Understanding who qualifies as a beneficial owner is key to correctly filling out the BOI.

What Business Types Need to File a BOI Report?

The CTA applies to domestic reporting companies, including corporations, LLPs, and other entities created by filing with a secretary of state. It also applies to foreign reporting companies registered to do business in the U.S. (The law does not apply to sole proprietorships.)

Are Any Companies Exempted from the Filing Requirements?

Yes. The CTA names 23 types of companies that do not have to report. These include, but are not limited to, securities companies, banks, public utilities, insurance companies, accounting firms, and tax-exempt organizations, among others.

When Do I Have to File a BOI Report?

Reporting businesses that form after January 1, 2024 will have 90 days to file their BOI report. Reporting businesses that existed before January 1, 2024 will have until January 1, 2025 to file.

What Happens if I Fail to File?

Non-compliance with the CTA can result in significant penalties. You can be fined at least $500 per day for each day you are late to file, and deliberate avoidance can even result in federal criminal charges.

Importance of Legal Guidance

By creating an electronic filing system online, FinCEN has attempted to make it as easy as possible for small businesses to file their BOI reports by following the prompts. However, given what it at stake and the potential consequences for noncompliance, it’s highly recommended to have your attorney navigate this process for you. At Hood Venture Counsel, we can give you greater peace of mind by making sure you’re in full compliance with this new law and other key requirements. We’ll inform you on whether your company is required to file or whether you are exempt. We will also ensure the report is filed without errors, and we’ll even keep your BOI

information up to date with amended reports should there be any significant changes in your ownership structure. Contact us to learn more about how we can help.

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