Understanding the Implications of the New Federal Law Requiring Small Businesses to Register with the US Department of Treasury

The Corporate Transparency Act (CTA), which came into effect on January 1, 2024 is a groundbreaking legislation that mandates that small businesses disclose crucial information about their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Failure to comply with these new reporting requirements doesn’t just come with a slap on the wrist – the penalties are severe. Violators could face civil fines of up to $500 per day for non-compliance, along with the looming threat of imprisonment for up to two years and hefty criminal fines reaching $10,000. The stakes are undeniably high, and understanding the intricacies of this law is paramount for businesses of all sizes. Let’s delve into the basics of the Corporate Transparency Act, explore who it affects, and what steps need to be taken to ensure compliance.

New Reporting Requirements under the Corporate Transparency Act

As of January 1, 2024, a significant legislative measure, the Corporate Transparency Act (CTA), has come into effect, requiring reporting companies in the United States to disclose information regarding their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). This law aims to enhance transparency and combat financial crimes by providing greater insight into the ownership structures of businesses. Let’s delve into the basics of the law, who it affects, the penalties for non-compliance, and what businesses need to do to adhere to the requirements.

Understanding the Basics of the Law

The CTA applies to both domestic and foreign entities, encompassing corporations, limited liability companies (LLCs), and similar entities created through filings with state authorities. Certain exemptions exist for entities such as banks, SEC-reporting companies, and insurance companies. Beneficial owners, defined as individuals who directly or indirectly control or own at least 25% of the entity, are subject to reporting requirements.

Who is Affected?

Reporting companies, including domestic and foreign entities, are required to comply with the CTA. Beneficial owners, individuals with substantial control over the entity, must be identified and reported. There is no maximum limit on the number of beneficial owners to be reported. However, certain individuals, such as minors, nominees, and employees without substantial control, are exempted from being considered beneficial owners.

What Needs to Be Reported?

Reporting companies must provide comprehensive information about the entity, including its full legal name, trade names, address, jurisdiction of formation, and federal taxpayer identification number. Additionally, details about beneficial owners, such as their full legal name, birthdate, home address, and identifying documents like a driver’s license or passport, need to be disclosed. If a company is formed on or after January 1, 2024, information about the company applicant must also be provided.

Penalties for Non-Compliance

Business owners who fail to report complete or updated information to FinCEN could face civil or criminal penalties. Civil penalties include fines of up to $500 for each day of non-compliance, while criminal penalties may result in imprisonment for up to two years and fines of up to $10,000.

What Needs to Be Done?

Existing reporting companies formed before January 1, 2024, must file their initial reports no later than January 1, 2025. Newly-formed reporting companies created after January 1, 2024, must file their initial reports within 90 days of receiving notice of their creation or registration. Companies must utilize FinCEN’s BOI E-Filing System to submit their reports electronically.

Contact Experts for Assistance

If you require additional assistance navigating the requirements of the Corporate Transparency Act, consider reaching out to experts such as Taino Consultants Inc. Our expertise can help ensure compliance and mitigate any potential risks associated with non-compliance. Stay proactive and informed to safeguard your business interests in this evolving regulatory landscape.