This FAQ addresses common questions related to the Corporate Transparency Act (CTA), which took effect on January 1, 2024. Please reach out to Patrick Ellis or your Kuhn Rogers attorney with any questions, including whether or not your company requires action in response to the CTA.

General Information

Q1: What is the Corporate Transparency Act (CTA)? The Corporate Transparency Act (CTA), which became effective on January 1, 2024, is a landmark U.S. federal law. The CTA mandates the disclosure of beneficial ownership information for a wide range of domestic and foreign entities to the Financial Crimes Enforcement Network (FinCEN). The law's primary goal is to curb the misuse of corporate structures for illicit activities such as money laundering, tax evasion, and financing terrorism. It represents a notable shift in the U.S. approach to corporate transparency and financial crime prevention.

Q2: Who is affected by the CTA? The CTA targets primarily smaller, unregulated companies that may be at risk of being used for illicit activities. It affects both domestic entities, formed through state filings, and foreign entities registered to conduct business in the U.S. Large operating companies, publicly traded companies, regulated entities, and specific categories of entities such as banks and governmental authorities are exempt. This exemption is due to their existing rigorous regulatory and reporting frameworks, which already provide a level of transparency.

Reporting Requirements

Q3: What information must be reported under the CTA? Reporting Companies under the CTA are mandated to provide comprehensive information about their beneficial owners and company applicants. This includes their full legal names, dates of birth, residential or business addresses, unique identifying numbers from official documents (like passports or driver’s licenses), and images of these identifying documents. The intention is to create a transparent registry of who ultimately owns, controls, and benefits from the activities of these entities.

Q4: Who qualifies as a 'Beneficial Owner' under the CTA? A 'Beneficial Owner' in the context of the CTA is any individual who, directly or indirectly, either exercises substantial control over a reporting entity or holds at least a 25% ownership interest in it. This broad definition is intended to capture a wide range of individuals who wield significant influence or stand to benefit significantly from the entity, regardless of their official title or position.

Q5: Are there any exceptions to the reporting requirements? The CTA lists 23 exemptions from its reporting requirements, primarily for entities that are already subject to stringent regulatory oversight. These exemptions apply to banks, credit unions, certain insurance companies, publicly traded companies, and more. The Act also defines specific individual exemptions, such as for minors, nominees, and certain employees, recognizing that these individuals typically do not have substantial control or ownership stakes warranting disclosure.

Compliance Deadlines

Q6: What are the deadlines for reporting under the CTA? The initial reporting deadlines under the CTA vary based on when the entity was formed. For entities existing before January 1, 2024, the deadline to submit their first beneficial ownership report is January 1, 2025. Entities formed or registered in 2024 have a 90-day period from their formation to file their initial reports. This extension aims to give new entities adequate time to understand and comply with their reporting obligations.

Penalties for Non-Compliance

Q7: What are the penalties for non-compliance with the CTA? The CTA imposes strict penalties for non-compliance to underscore the importance of its provisions. Failing to report or inaccurately reporting beneficial ownership information can lead to civil penalties of up to $500 per day of non-compliance and criminal fines up to $10,000, along with potential imprisonment. These penalties highlight the critical nature of timely and accurate reporting under the CTA.

Access to Information

Q8: Who can access the reported beneficial ownership information? The CTA establishes controlled access to the beneficial ownership information to protect sensitive data while allowing for its use in law enforcement and regulatory compliance. Access is granted to specific entities like U.S. federal, state, local, and tribal law enforcement agencies, foreign law enforcement, and financial institutions. This regulated access is designed to balance transparency with privacy and security concerns.

Submission and Verification

Q9: How is the beneficial ownership information submitted? The CTA requires that beneficial ownership information be submitted electronically via the FinCEN BOI E-Filing system. This digital platform ensures a secure, efficient, and standardized process for submitting the required information. It's designed to handle the sensitive nature of the data being reported while providing a user-friendly interface for entities to comply with their reporting obligations.

Q10: Who is responsible for the accuracy of the information submitted? Reporting entities bear full responsibility for the accuracy of the information submitted under the CTA. This applies regardless of whether the information is provided directly by the entity or through a third-party service provider. Ensuring the accuracy of submitted data is crucial, as inaccuracies can lead to significant penalties and legal implications.

Updating Information

Q11: Are there requirements for updating the beneficial ownership information? The CTA mandates timely updates to beneficial ownership information. Any changes to ownership structure, control dynamics, or other relevant details must be reported within 30 days. This requirement ensures that the information in the FinCEN registry remains current and reflective of the actual ownership and control structure of the reporting entities.

Preparation for Compliance

Q13: What should companies do to prepare for CTA compliance? To prepare for CTA compliance, companies should conduct a thorough review of their ownership and control structures to determine if they fall under the Act’s reporting requirements. Establishing internal processes and policies for gathering, verifying, and updating the required information is crucial. Companies may also need to review and amend their corporate governance documents and operating agreements to ensure compliance with the CTA’s provisions.

The information provided in this FAQ is based on resources available as of January 2024 and is subject to change. Please consult with legal counsel for the most current information and personalized advice. This FAQ provides general information only and does not constitute legal advice for any particular situation. Advertising Material.