Corporate Transparency Act | Law Offices of Aaron Resnick

Understanding the Corporate Transparency Act: What It Means for Your Business

The Corporate Transparency Act (CTA) is a landmark piece of legislation aimed at increasing transparency in business ownership in the United States. The act, passed in January 2021, requires most companies to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). The goal of the Corporate Transparency Act is to combat money laundering, terrorist financing, and other illicit financial activities by making it more difficult for bad actors to hide behind anonymous shell companies.

At the Law Offices of Aaron Resnick, we help businesses navigate the complexities of the Corporate Transparency Act, ensuring compliance with its reporting requirements and advising on exemptions. In this article, we will explore the key aspects of the CTA, its implications for business owners, and how our firm can assist you in meeting the compliance standards.

What Is the Corporate Transparency Act?

The Corporate Transparency Act was enacted as part of the National Defense Authorization Act (NDAA) for Fiscal Year 2021. It requires most domestic and foreign entities conducting business in the U.S. to disclose information about their beneficial owners. This includes the names, addresses, dates of birth, and identification numbers of individuals who ultimately own or control a company, as well as the nature of that control.

The goal of the CTA is to enhance transparency in the corporate world, helping authorities detect and prevent criminal activities such as money laundering and tax evasion, which often involve shell companies designed to obscure the true identity of their owners.

Who Must Comply with the Corporate Transparency Act?

Under the CTA, reporting is required for most types of companies, including:

Corporations
Limited Liability Companies (LLCs)
Limited Partnerships
Other similar entities

There are, however, important exceptions. Certain entities are exempt from filing under the Corporate Transparency Act, including:

Large Operating Companies – Companies with more than 20 employees, more than $5 million in annual revenue, and a physical presence in the U.S. are exempt.
Regulated Entities – Entities already regulated by federal agencies, such as banks, insurance companies, and registered investment companies, are exempt from the CTA's reporting requirements.
Inactive Entities – Companies that have been in existence for more than a year but are not actively engaged in business may not be required to disclose ownership information.

For companies that fall outside these categories, the reporting requirements of the Corporate Transparency Act will apply.

Key Reporting Requirements Under the CTA

The Corporate Transparency Act mandates that covered entities provide specific information about their beneficial owners to FinCEN. These details include:

Full Name: The legal name of each beneficial owner.
Date of Birth: The date of birth for each beneficial owner.
Residential or Business Address: The residential or business address of each beneficial owner.
Identification Number: A unique identifying number, such as a passport or driver's license number, or a special identification number from a government-approved source.

These details must be filed with FinCEN when the entity is formed or registered in the United States. Changes to ownership information must also be reported within a year of the change.

Timeline for Reporting

The Corporate Transparency Act sets a clear timeline for businesses to comply with its reporting requirements:

Existing Entities: Existing companies must file their beneficial ownership information with FinCEN by January 1, 2025.
New Entities: Any company formed or registered after the enactment of the CTA (January 1, 2022) must submit their beneficial ownership information to FinCEN within 30 days of formation.

This timeline gives businesses time to gather and report necessary ownership information while ensuring compliance with the CTA's provisions.

Penalties for Non-Compliance

The Corporate Transparency Act includes significant penalties for failing to comply with its reporting requirements. These penalties can be severe, including:

Civil Penalties: Companies that fail to comply with the CTA's reporting requirements may face civil penalties of up to $500 per day.
Criminal Penalties: Willful violations or knowingly providing false or fraudulent information can result in criminal penalties, including fines of up to $10,000 and potential imprisonment.

Given these significant penalties, it is crucial for businesses to ensure that they comply with the reporting requirements and submit accurate information to FinCEN in a timely manner.

Benefits of the Corporate Transparency Act

While the Corporate Transparency Act imposes new compliance burdens on businesses, it also provides important benefits:

Enhanced Corporate Transparency: By requiring businesses to disclose their beneficial owners, the CTA helps to reduce the anonymity of shell companies, making it easier for authorities to detect illegal activities such as money laundering, fraud, and tax evasion.
Improved Trust: The increased transparency of company ownership can improve trust in the U.S. business environment, particularly for investors and business partners who want to ensure they are working with reputable entities.
Level Playing Field: The CTA creates a more level playing field for businesses by ensuring that all companies, regardless of size, disclose their ownership structures, making it more difficult for bad actors to exploit the system.

How We Can Help

At the Law Offices of Aaron Resnick, we assist businesses with navigating the complexities of the Corporate Transparency Act. Our legal team can help you understand whether your company is subject to the reporting requirements, assist with the filing process, and provide guidance on how to comply with the act's provisions. If you are uncertain about how the CTA applies to your business, we can provide a thorough analysis and offer strategies for ensuring compliance.

We also help businesses assess whether they qualify for any exemptions and assist with correcting any potential mistakes or omissions in your filings.

Contact Us Today

If you need assistance with the Corporate Transparency Act, the Law Offices of Aaron Resnick are here to help. Our experienced attorneys can guide your business through the compliance process and ensure that your filings are complete and accurate.