What You Need to Know About the Corporate Transparency Act?

By Elidia C. Dostal, Partner

On January 1, 2024, a new law goes into effect that will impact nearly all business owners. The Corporate Transparency Act (CTA), which was part of the Anti-Money Laundering Act of 2020, was enacted to combat money laundering, fraud, terrorist financing and other illicit activities. The goal of the CTA is to increase transparency in corporate ownership by mandating certain companies disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury. Let’s look at the CTA and what it means for your business.?

Beneficial owners are individuals who directly or indirectly exercise substantial control over a company or who benefit economically from its operations. The Act was designed to make it harder for criminals to hide behind anonymous shell companies. The CTA applies to various types of entities, including corporations, limited liability companies (LLCs) and other similar structures, as well as any business entity formed in the United States or foreign entities. It’s yet to be determined whether smaller companies will be exempt, or what the requirements will be to qualify for exemption.

Under the CTA, covered entities must report detailed information about their beneficial owners. This includes the owner’s full legal name, date of birth, current residential or business address, and a unique identification number (e.g., driver's license or passport number). Companies must also update this information within one year of any changes. If companies do not comply with the CTA requirements beginning January 1, 2024, they could be faced with significant penalties, including civil and criminal penalties. Additionally, failure to report accurate and timely information or providing false information can result in fines of up to $10,000 and prison time for up to two years.

With the implementation of the CTA, businesses will be required to keep careful records and reporting with respect to their beneficial owners. Additionally, start-ups and small businesses should also be aware of the reporting requirements. The CTA also has implications for investors. As they consider investing in U.S. companies, investors need to understand the ownership structure and the individuals behind a company.

The CTA requirements are new, uncharted waters and should not be ignored. And as the regulatory framework surrounding the CTA evolves, businesses and investors must stay informed and adapt to the new reporting requirements to avoid penalties. It’s best to work with an experienced business attorney who can ensure your company is in compliance with the law and requirements are fulfilled when it goes into effect on January 1.

Elidia C. Dostal is a business transactional and compliance attorney and partner with Vanst Law LLC. She serves business clients who understand the importance of involving an attorney at the front end of business transactions and compliance issues to avoid the high cost of litigation or regulatory fines. Elidia brings an expert understanding of the importance of thinking ahead to avoid potential future liabilities.