Part 1: Understanding the Basics
The Corporate Transparency Act is a landmark federal law that will significantly impact businesses and individuals by putting the onus on businesses to become more transparent about their ownership structures. The Act aims to enable law enforcement agencies to detect and prevent financial crimes more effectively.
Throughout this four-part series, we will examine the Corporate Transparency Act in detail and explore its key provisions. We will provide insights into what businesses can expect and how they can comply with the new regulations. You’ll gain a comprehensive understanding of this important legislation and how it will affect your business’s operations, financial reporting, and risk management.
What is the Corporate Transparency Act?
Starting on January 1, 2024, at least 32 million business entities nationwide will be required to report personal information about their owners and senior officers to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department. The requirement comes from the Corporate Transparency Act, federal legislation passed by Congress to help prevent and reveal money laundering, terrorism financing, corruption, fraud, and other financial crimes.
For now, the information reported to FinCEN will be stored in a confidential database accessible only to law enforcement agencies and financial institutions for specified purposes, such as compliance with anti-money laundering laws.
What entities are impacted?
Entities covered by the Act include those that are privately held, with fewer than 20 full-time employees and less than $5 million in annual revenue. The reporting requirements apply to both new and existing entities.
After January 1, 2024, the following deadlines go into effect:
- If your entity was formed prior to January 1, 2024, you will have one year, with a deadline of January 1, 2025, to comply with the new rules.
- If your entity is formed on or after January 1, 2024, you will have 30 days to comply with the new rules.
What do I have to report?
Under the new rule, you are required to report information about your entity’s ‘beneficial owners,’ defined as individuals who directly or indirectly own or control at least 25% of the ownership interests or voting rights in the company, as well as senior officers.
The information required to be reported includes:
- Dates of birth
- Identification numbers (such as a passport or state issued ID)
Any changes to the already-reported beneficial owners must be reported to FinCEN within 30 days of the change.
What happens if I fail to comply?
Failure to comply with the new rule’s reporting requirements may result in civil and criminal penalties, including fines of up to $500 for each day of noncompliance, up to a maximum of $10,000, and imprisonment for up to two years.
In the next post of this series, we’ll delve deeper into the applicability and requirements of the new rule, including which entities will need to report, what information will need to be reported, and the potential exemptions that may apply.