Urgent Legal Updates for Business Owners

Preparing for the Corporate Transparency Act (CTA) Effective on January 1, 2024

A critical development is on the horizon that requires the immediate attention of U.S. business owners. The Corporate Transparency Act (CTA), was passed by Congress in 2021 and authorized the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) to issue rules for implementing the new Act. Those Final Rules were published in late 2022 and are set to become effective on January 1, 2024.

The CTA aims to curb money laundering and illicit financial activities by enforcing stringent reporting requirements. It is crucial for all affected businesses to understand the key provisions of the Act and to take proactive steps to ensure compliance. The Gunderson Law Group is currently preparing an educational seminar on this topic, which will be released later in the year. This article will highlight some of the key provisions and urgency surrounding the implementation of the CTA and outline an introductory guide to navigating the new requirements.

Determining Applicability

The CTA applies to “reporting companies” who are obligated to disclose “beneficial ownership” information to FinCEN. These “reporting companies” generally include all corporations, limited liability companies, and similar entities formed by filing documents with a secretary of state or similar office under state or tribal law. Some exemptions exist including publicly traded companies and certain entities regulated through other statutes, but the CTA applies very broadly and includes most small and mid-sized businesses.

Compliance Obligations

Reporting Beneficial Ownership

Under the CTA, reporting companies must disclose information regarding their “beneficial owners.” The term beneficial owner includes anyone who owns at least 25% of the company’s equity interest (including both direct and indirect ownership). The term also includes those who exercise “substantial control” over the company. The term “substantial control” is defined very broadly and includes not only senior officers but can also those with significant responsibility over the company, regardless of their formal position or title.

Providing Required Information

To ensure compliance, reporting companies must provide the following details for each beneficial owner:

Full legal name
Date of Birth
Current Address
Unique identification number from an acceptable identification document
An image of such government identification document.

Reporting companies must also provide their own information, including:

Legal Name
Trade Name or DBA (if applicable)
Address
Jurisdiction of incorporation or organization
Unique Identification Number (EIN)

It is important to note that this information must be provided to FinCEN, but is not intended to be made publicly available. The CTA includes safeguards and confidentiality requirements so that information reported FinCEN will be kept confidential. However, FinCEN is expressly authorized and required by statute to share beneficial owner information (BOI) for specified purposes with certain government agencies (including law enforcement agencies), financial institutions, and regulators.

Updates & Changes

Maintaining accurate information is vital. Reporting companies must promptly update any changes or developments in beneficial ownership within one year of the defective date of the change. Timely updates are critical to avoid penalties and to ensure ongoing compliance.

Compliance Timeline & Penalties

The Final Rules issued under the CTA go into effect on January 1, 2024. Any newly formed reporting company created after that date must disclose their beneficial ownership information at the time of formation. Companies that were created before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports.

Failure to file or maintain accurate records can lead to significant fines (up to $10,000 per violation) and up to two years of imprisonment.

Conclusion

Required compliance with the Corporate Transparency Act is rapidly approaching. With the January 1, 2024 effective date drawing near, it is important that business owners the Act’s provisions and begin taking steps to ensure compliance. By promptly disclosing accurate information to FinCEN, businesses can protect themselves and avoid unnecessary and potentially costly penalties. If you have questions or would like to begin discussing compliance options, please contact us at contact@gundersonlawgroup.com.