Understanding the Corporate Transparency Act: What Your Business Needs to Know

As a business operating in the U.S., it’s essential to stay ahead of new regulations that could impact your compliance requirements. One of the most significant updates on the horizon is the Corporate Transparency Act (CTA), a federal law designed to increase transparency in business ownership and combat financial crimes. The CTA introduces new reporting obligations for many U.S. businesses, and understanding how it applies to your company is critical.
Here’s what you need to know about the CTA and how to ensure your business remains compliant.

What Is the Corporate Transparency Act (CTA)?
The CTA requires certain U.S. businesses to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN). This report discloses details about individuals who own or control a company, commonly referred to as beneficial owners.

The goal of the CTA is to prevent the use of shell companies for illicit activities, such as money laundering or tax evasion, by increasing the transparency of who truly owns and controls U.S. entities.

Who Needs to Comply?
The CTA applies to most corporations, limited liability companies (LLCs), and other similar entities that are registered in the U.S. or conduct business here. However, some entities are exempt from the requirement, including:
● Publicly traded companies (which already report ownership to the SEC)
● Heavily regulated entities (such as banks and insurance companies)
● Large operating companies with over 20 employees, more than $5 million in revenue, and a physical presence in the U.S.

If your business is a privately held entity that doesn’t fall under one of these exemptions, you are likely required to submit a BOI report. Beneficial Ownership Information Reporting | FinCEN.gov

What Is a Beneficial Owner?
A beneficial owner is anyone who:
● Directly or indirectly owns 25% or more of the company’s equity, or
● Exercises substantial control over the company, such as making significant decisions or influencing the company’s direction (this includes key executives, managers, and directors).

For each beneficial owner, you must report:
● Full legal name
● Date of birth
● Current residential or business address
● A unique identifying number from a government-issued ID, such as a passport or driver’s license
This information must be accurate and up-to-date, and any changes in ownership or control need to be reported within 30 days.

Filing Deadlines
Businesses need to be aware of important deadlines:
● Existing companies (formed before 2024) must submit their initial BOI report by January 1, 2025.
● New businesses (formed after the CTA takes effect in 2024) are required to file their BOI report within 30 days of formation.

If there are changes in beneficial ownership, the company has 30 days to file an updated report
with FinCEN.

Penalties for Non-Compliance
Failing to file a BOI report when required can lead to severe penalties, including:
● Civil penalties: Up to $500 per day for late or missing reports
● Criminal penalties: Potential fines and imprisonment for willfully providing false information or failing to file

It’s crucial for businesses to understand these obligations and take steps to avoid penalties by complying with the CTA.

What Should Your Business Do Next?

1. Determine if the CTA applies to your business: Review your company’s ownership and structure to see if you fall under the reporting requirements. This includes identifying whether your business is exempt or required to comply.
2. Identify your beneficial owners: Make a list of individuals who own 25% or more of your company or who have significant control over decision-making. Collect the necessary information (full names, addresses, ID numbers) for reporting purposes.
3. Prepare to file the BOI report: Ensure you have accurate information ready to submit to FinCEN before the deadlines. Consider setting up processes for monitoring ownership changes, so you can file updated reports as required.
4. Seek professional guidance: Given the complexity of these new requirements, it’s wise to consult with legal or financial professionals (Catalyst Connection) to ensure your business is fully compliant. This will help avoid costly penalties and ensure you’re meeting all federal obligations.
   
   The Importance of Ongoing Monitoring
   The CTA is not a one-time filing requirement. Your company must stay vigilant about any changes in ownership or control. For example, if someone acquires or sells more than 25% of your company, or if a new executive with substantial control joins your leadership team, you’ll need to file an updated BOI report within 30 days.
   
   Exemptions and Special Cases
   Not every business will need to file. As mentioned, publicly traded companies, heavily regulated entities, and large operating companies may be exempt from this requirement.
   
   However, if your situation changes—such as if your company becomes privately held or no longer meets the exemption criteria—you may need to file a BOI report in the future.
   
   Final Thoughts
   The Corporate Transparency Act introduces new compliance challenges, but it also enhances financial transparency, protecting the integrity of U.S. businesses. Whether you’re a small, privately held manufacturer or a growing startup, it’s essential to understand how the CTA impacts your business and take proactive steps to comply with its requirements.
   
   If you have any questions or need assistance with your company’s reporting obligations, please reach out to Catalyst Connection. We’re here to help you navigate this new regulatory landscape and ensure you meet all the necessary compliance standards.