Striking the balance between regulatory compliance and business efficiency is a difficult task. The Corporate Transparency Act (CTA) which took effect at the beginning of the year marks a significant milestone in this domain, offering numerous advantages for businesses in the U.S. Despite initial apprehension, the CTA promises to enhance corporate governance, foster investor confidence and contribute to a more transparent business environment.
Enacted in 2021, the CTA’s primary objective is to establish a reporting mandate for a wide range of U.S. and foreign-based entities and trusts. The core purpose of the CTA is to strengthen the ongoing battle against complex financial crimes and corruption, encompassing everything from money laundering, tax evasion, corruption, terrorist financing and even human trafficking.
The Corporate Transparency Act, which builds upon the Anti-Money Laundering Act of 2020, is a significant step forward in promoting financial integrity and transparency. However, it also imposes additional responsibilities on small and medium-sized businesses, necessitating the collection, reporting and ongoing monitoring of certain information to ensure compliance with its provisions.
One of the primary requirements under the CTA is the filing of a Beneficial Ownership Information Report (BOIR) with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The purpose of this report is to gather data to help authorities identify the true owners or controllers of a business entity. Failure to comply with the CTA can result in both civil ($500 a day penalty, up to $10,000) and criminal penalties (up to two years’ imprisonment), underscoring the urgency for all businesses to adhere to the law. Senior officers of an entity neglecting to file a mandated BOIR may be held responsible for any lapses in filing.
Who must report and file a BOIR?
The CTA defines a “reporting company” as any new or pre-existing domestic or foreign entity, such as corporations, LLCs, partnerships and business trusts, that are registered to do business in the United States. This means that any registered entity formed by filing documents with a secretary of state or similar state or tribal office falls under the purview of the CTA reporting requirements.
Reporting companies are responsible for filing their BOIR and verifying the information as complete and accurate. Any representative authorized by the reporting company to act on its behalf (such as an employee, owner, or third-party service provider) may file a BOIR for said reporting company and certify it on their behalf.
Are there any exemptions to the reporting rule?
FinCEN identified 23 exemption categories for reporting companies. If an entity meets the exemption criteria and falls under any one of those categories, it does not have to submit a beneficial ownership report. These exemptions are generally for entities already subjected to close regulation by the federal and state governments including publicly traded companies meeting specific requirements, many nonprofits, and certain large operating companies.
Where and when to file?
BOIRs can be filed online on FinCEN’s website at https://boiefiling.fincen.gov. For existing reporting companies, the deadline to register their BOIR with FinCEN is Jan. 1, providing ample time for compliance. New reporting companies formed after Jan. 1 will have a 90-day window from the date of formation to file their BOIR. Reporting companies created or registered on or after Jan. 1, will have 30 calendar days to file its initial BOIR.
There are no fees associated with submitting the BOIR to FinCEN. Unless there are changes or updates to your reporting company or its beneficial owners, BOIRs are not filed annually. FinCEN requires reporting companies to file an updated report within 30 calendar days of when a relevant change occurs in the reporting company or its beneficial owners.
‘Levels the playing field’
The CTA levels the playing field by making it harder for illicit actors to operate under the guise of legitimate businesses. When all companies are held to the same standard of transparency, it prevents non-legitimate businesses from gaining an unfair advantage through unethical means.
This promotes fair competition and ensures businesses succeed based on their goods and services, not the ability to exploit opaque ownership structures.
While it may initially be perceived as an additional regulatory burden, the CTA’s long-term benefits outweigh the inconvenience. By enhancing corporate governance, boosting investor confidence, promoting fair competition, facilitating due diligence, supporting regulatory compliance and contributing to a more transparent society, the CTA reinforces the foundation for a better business environment.
Janice L. Miller is the managing partner of Miller Haga Law Group, LLC in Calabasas. She is a highly-recognized legal adviser, published author, noted speaker and panelist with over 25 years of experience as an innovative general counsel in business, real estate, entertainment and intellectual property.
