Overview of the Corporate Transparency Act

Understanding Beneficial Ownership Information Reports

Overview of the Corporate Transparency Act

The Corporate Transparency Act was a major piece of legislation. It will affect tens of millions of business entities and those who own and control those entities. In this article we will provide an overview of the Corporate Transparency Act.

The Corporate Transparency Act requires reporting companies to report beneficial ownership information to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Beneficial ownership information is reported on a beneficial ownership information report.

Reporting Companies:

Most corporations, limited liability companies, and other similar entities created in the United States or registered to do business in the United States are considered reporting companies under the Corporate Transparency Act.
Certain entities are exempt from these requirements, such as financial institutions, investment companies, insurance companies, public utilities, and tax-exempt entities.
FinCEN anticipates that most entities organized or registered to do business in the United States will have to file a Beneficial Ownership Information Report.

Beneficial Ownership Information:

Reporting companies must identify each beneficial owner.
Companies must also report information about company applicants, which includes the individuals who file the application to form or register the entity.

Reporting Process:

Every reporting company must file an initial beneficial ownership information report.
Beneficial Ownership Information reports must be filed with FinCEN electronically through a secure filing system on FinCEN’s website called the Beneficial Ownership Secure System.
Reporting companies must file updated reports within 30 days of any changes to the reported information.
Reporting companies must file corrected reports within 30 days of discovering an error on a previously-filed beneficial ownership information report.
There is no annual reporting requirement, but initial reports must be filed by specific deadlines.
Presently, initial reports must be filed:
- By January 1, 2025 for reporting companies established before January 1, 2024.
- Within 90 days of formation or registration for reporting companies created or registered on or after January 1, 2024 but before January 1, 2025.
- Within 30 days after formation or registration for reporting companies created or registered on or after January 1, 2025.
Updated or corrected Beneficial Ownership Information Reports must be filed within 30 days of the event triggering the update or of learning of the need to correct.
To simplify the reporting process, FinCEN will allow reporting companies, beneficial owners, and company applicants to obtain FinCEN identifiers.

Penalties for Non-Compliance

Reporting companies that fail to file correct or updated beneficial ownership information can be subjected to monetary or criminal penalties.
Penalties can be up to $500 per day or imprisonment for up to two years and/or a fine of $10,000.

What Is the Corporate Transparency Act?

The Corporate Transparency Act is an act by the federal government to standardize entity formation. This standardization is accomplished by requiring most entities to file a beneficial ownership information report with FinCEN.

Why Did Congress Create the Corporate Transparency Act?

The purpose of the Corporate Transparency Act is to provide law enforcement with information about the true owners of entities operating in the U.S. In passing the Corporate Transparency Act, Congress stated:

that few if any states required the reporting of beneficial ownership when forming or registering an entity,
this lack of beneficial ownership information created the opportunity for criminals to use U.S. entities for illicit activities, such as money laundering, financing terrorism, tax fraud, and other crimes, and
criminal investigations were often hampered by the lack of information about the beneficial owners of entities that were engaged in or facilitating criminal conduct.

What Will FinCEN Do with All of This Information?

To accomplish the Corporate Transparency Act’s purpose, FinCEN is required to create a centralized, secure repository of beneficial ownership information. Rather than requiring FinCEN to gather all such information itself, the Corporate Transparency Act instead imposes a legal obligation on entities and their owners to file Beneficial Ownership Information Reports. To compel compliance, the Corporate Transparency Act imposes penalties for failure to file or failure to correctly report required information on those Beneficial Ownership Information Reports. Those reports will then create a vast database that certain federal, state, and foreign agencies can review to determine an entity’s beneficial owners and company applicants.

The Beneficial Ownership Information Report regime is a vast new information filing requirement. It will affect most entities already formed or registered in the U.S. And it will affect any entity formed or registered in the U.S. in the future.

Conclusion

Navigating the requirements of the Corporate Transparency Act can be complex, but you do not have to do it alone. Experienced counsel can guide you through the intricacies of the Act, ensuring that your business remains compliant with these new federal standards.

Reader Interactions