How to comply with the Corporate Transparency Act
If you’re a business owner, you may already be aware that the Corporate Transparency Act (CTA) comes into effect on January 1, 2024. This legislation, which Congress passed in 2021, dictates that certain businesses must disclose shareholder and Ultimate Beneficial Owner (UBO) information to the Financial Crimes Enforcement Network (FinCEN). Failure to do so could lead to daily $500 fines or two years of jail time for business owners.
Businesses need to start preparing for this new legislation to ensure that they remain compliant. If you don’t already use entity management software, then it may be time to invest to ensure that you can easily oversee your entity data and prepare for reporting. In this article, we’ll take an in-depth look at the Corporate Transparency Act and examine how an entity management platform can assist you with your reporting capabilities.
What is the Corporate Transparency Act?
The CTA aims to increase transparency around corporate ownership in a bid to prevent financial crime including money laundering and tax evasion. With the introduction of the CTA, it will now be easier for government bodies to find out information about business owners, increase corporate due diligence, and ultimately introduce more transparency around corporate ownership.
Reporting Companies include domestic and foreign corporations, limited liability companies, or other similar entities that are formed or registered to do business in any U.S. jurisdiction and do not qualify for an exemption.
A Reporting Company is required to report to FinCEN:
Its full legal name
Any of its “DBA” names
Its principal place of business in the U.S.
Its jurisdiction of formation (or jurisdiction of first registration if a foreign reporting company)
Its IRS Taxpayer Identification Number (TIN) or FEIN (or tax ID issued by a foreign jurisdiction if a foreign reporting company)
Individuals who either exercise substantial control over a Reporting Company or who own or control at least 25% of the ownership interests of a Reporting Company are considered Beneficial Owners.
The individual who files the document that registers a foreign entity to do business in the United States or who files the document that forms a domestic entity is considered a Company Applicant. The individual who instructs or directs the formation or registration of an entity is also considered a Company Applicant.
Reporting Companies will need to file a Beneficial Ownership Information (BOI) Report to FinCEN consisting of the following information for each Beneficial Owner:
Name
Date of birth
Address
A government-approved ID number
Reporting Companies formed or registered in the U.S. on or after January 1, 2024, will be required to report Company Applicant information to FinCEN consisting of the same Personal Identifiable Information (PII) as is required above for Beneficial Owners.
In lieu of disclosing PII to Reporting Companies, Beneficial Owners and Company Applicants can apply for a FinCEN Identifier. This number can then be used by the Reporting Company to identify the individual without their PII.
When are the filing deadlines?
Deadlines for filing your BOI differ depending on when your business was formed. If you formed your business before January 1, 2024, you have until January 1, 2025, to file. However, new businesses formed on or after January 1, 2024, have 90 days to file, and businesses registered or created on or after January 1, 2025, will only have 30 days to file.
What type of businesses are exempt from filing?
Some types of business entities do not need to file a BOI report. Currently the following business types are exempt from complying with the CTA:
Securities reporting issuer
Governmental authority
Bank
Credit union
Depository institution holding company
Money services business
Broker or dealer in securities
Securities exchange or clearing agency
Other Exchange Act registered entity
Investment company or investment adviser
Venture capital fund adviser
Insurance company
State-licensed insurance producer
Commodity Exchange Act registered entity
Accounting firm
Public utility
Financial market utility
Pooled investment vehicle
Tax-exempt entity
Entity assisting a tax-exempt entity
Large operating company
Subsidiary of certain exempt entities
Inactive entity
How an entity management system can help track data
Computershare understands the importance of overseeing entity data to comply with the CTA. For multi-state or multi-national companies, intricate corporate structures can lead to disjointed data and management issues that could result in reporting issues. Smaller companies also may lack the processes to track and report this information accurately.
By using an entity management system like Computershare’s Global Entity Management System, GEMS™, you can efficiently manage your company ownership information and ensure everything is up to date. GEMS has many tools that will help you organize and view ownership information, and facilitate your reporting capabilities so that you remain compliant with the CTA:
Input and view ownership data in one place
Determine whether an entity is a “Reporting Company” or not
Automatically update all relevant data entries when ownership information changes
Secure store documents so you can easily find and view old documents relating to UBOs and shareholders
View your entity structure in a user-friendly chart form so you can see what information you need to supply relating to the CTA
Swiftly pull ownership data from multiple entities to create reports and fulfill ownership reporting obligations
Use automation to create BOI reports and reduce the risk of human error
Receive filing deadline reminders
Flag compliance issues which could lead to CTA reporting problems
Store Company Applicant data and FinCEN Identifiers