learn about the Corporate Transparency Act
| Questions | Answers |
|---|---|
| Who is required to comply with the CTA? | The Corporate Transparency Act (CTA) broadly covers any corporation, limited liability company or “similar entity” that was created by filing a document with a Secretary of State, Tribal, or similar office. Existing firms will have filed Federal Income Tax returns demonstrating less than $5,000,000 in gross receipts or sales in the aggregate. Newly formed firms will have to automatically apply. The company will have less than 21 employees. There will be exceptions to this law. |
| What companies are exempt from filing? | The Corporate Transparency Act (CTA) plans to exclude selected types of companies from filing. For a detailed explanation, click here. |
| What happens if I lie or fail to file? | The penalties for non-compliance, such as failing to report or providing false information, include fines of up to $10,000 and a prison term of up to two (2) years for each offense! |
| What is a company applicant? | The Corporate Transparency Act defines “company applicant” as an individual who files a document that creates a domestic reporting company or who first registers a foreign reporting company with a Secretary of State, Tribal office, or similar office in the United States. The proposed law also includes any individual who directs or controls the filing of such a document by another person. |
| Where is the information stored, and who has access to it? | FinCEN will retain this information and hold it in a confidential and secure database, only releasing information in specifically prescribed circumstances: a request from certain federal or state agencies engaged in national security, intelligence, or law enforcement activity for use in furtherance of such activity, in certain types of requests from a federal agency on behalf of foreign authorities, a request by a financial institution “subject to consumer due diligence requirements,” with the consent of the reporting company, or a request made by a “Federal functional regulator” or other regulatory agency to assess or otherwise ascertain compliance of financial institutions. |
| What does this mean to small and mid-sized business entities? | It means most small and mid-size entities throughout the United States must begin reporting to FinCen starting 2024. FinCen estimates this new law will affect over 25 million entities. |
| When will the CTA go in effect? | Financial Crimes Enforcement Network, Bureau of the United States Department of the Treasury collected comments until Feb 7, 2022 to finalize the new law. The final rule for beneficial ownership reporting is effective January 1, 2024. Companies which were established on or before that date will be given a year to file. Sign up for our Newsletter, and CTAfiler.com will inform you of any future updates. |
| When must companies comply with the CTA? | Companies subject to the CTA will be required to begin reporting to FinCEN in 2024. The proposed Corporate Transparency Act law will require: Companies formed or registered after the effective date of the regulations must submit the required report to FinCEN with 14 days of formation or registration, Companies formed or registered prior to the effective date of the regulations, must submit the required report to FinCEN no later than one year after the effective date of the regulations, After the initial report is filed with FinCEN, companies must update any changes in the reported information within 30 days on which the change occurred. |
| Who is a beneficial owner? | The Corporate Transparency Act defines “beneficial owner” as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls not less than |
| What is the purpose of the Beneficial Ownership Information Reporting Requirements? | The purpose is to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States. |
| When is the effective date of these rules? | The rules are effective from January 1, 2024. |
| What is the role of the Financial Crimes Enforcement Network (FinCEN)? | FinCEN is issuing a final rule requiring certain entities to file with FinCEN reports that identify two categories of individuals: the beneficial owners of the entity, and individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. |
| Why is the U.S. Government implementing these rules? | The rules are being implemented to prevent potential wrongdoers from exploiting United States corporations and limited liability companies for criminal gain and to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and limited liability companies. |
| How does the U.S. Government plan to use the collected information? | The collected information will be used to identify and combat illicit activities such as money laundering, terrorist financing, corruption, tax fraud, and other illicit activities. |
| What is the impact of these rules on small businesses? | The rules are designed to minimize the burden on small businesses and other reporting entities while ensuring that the information collected is accurate, complete, and highly useful. |
| What is the estimated cost for reporting companies to prepare and submit an initial BOI report? | FinCEN estimates that it would cost the majority of reporting companies $85.14 to prepare and submit an initial BOI report. |
| What is the role of shell companies in illicit activities? | Shell companies can be used to conduct financial transactions while concealing true beneficial owners’ involvement. They have enabled the movement of billions of dollars across borders by unknown actors and have facilitated money laundering or terrorist financing. |
| What is the impact of these rules on the global economy? | The rules are expected to make the global economy stronger, fairer, and safer from criminals and national security threats by increasing transparency and closing legal and regulatory gaps in the U.S. AML/CFT framework. |
| What is the role of the 2016 Customer Due Diligence (CDD) Rule in collecting beneficial ownership information? | The 2016 CDD Rule increased transparency by requiring covered financial institutions to collect a legal entity customer’s BOI at the time of an account opening. However, it did not address the collection of BOI at the time of a legal entity’s creation. |
| How does the U.S. compare to other countries in terms of beneficial ownership transparency? | At least 30 countries have already implemented some form of central register of beneficial ownership information, and more than 100 countries, including the United States, have committed to implementing beneficial ownership transparency reforms. |
| What is the role of the Financial Action Task Force (FATF) in beneficial ownership transparency? | The FATF has noted U.S. deficiencies in the area of beneficial ownership transparency and identified the lack of BOI reporting requirements as one of the fundamental gaps in the U.S. AML/CFT regime. |
| How does the U.S. plan to address the deficiencies noted by the FATF? | The U.S. plans to address these deficiencies through the implementation of the Corporate Transparency Act (CTA), which requires companies to report adequate, accurate, and current BOI |
