What Businesses Need to Know About the New Corporate Transparency Act

On January 1, 2024, the Corporate Transparency Act—known as the CTA—went into effect.  This law, which Congress passed in 2021, is intended to assist law enforcement in combating financial crimes such as money laundering, tax fraud, the financing of terrorism, and other illicit activities that can be done through shell companies and businesses that are merely a front for the operator’s illegal activities.  Because failure to comply with the CTA can result in serious civil and criminal penalties, businesses should familiarize themselves with the new law.

 Who’s covered by the CTA?

The CTA applies mostly to smaller businesses.  The law defines the companies it covers—known as “Reporting Companies”—as domestic and foreign entities that do not fall within one of the act’s exemptions.  Those entities exempted from the CTA include large companies with more than 20 full-time employees, public companies, insurance companies, and venture capital fund advisors.

 What does the CTA require?

The CTA requires that Reporting Companies file disclosures and reports about the company with FinCEN, the Treasury Department’s Financial Crimes Enforcement Network.  Depending on various company-specific factors, these reports must include certain beneficial ownership information, information about the entity’s creation and registration, and any changes to previously reported information. 

When must CTA reports be filed?

The CTA imposes different filing deadlines depending on when a Reporting Company came into existence (or, in the case of a foreign company, when the company registered to do business in a state).  A Reporting Company that existed before January 1, 2024, has until January 1, 2025, to file its initial report.  If the Reporting Company was created on or after January 1, 2024, then the company must file its initial report within either 90 days of the earlier of the date on which it receives actual notice that its creation or registration has become effective, or the date on which a secretary of state first provides public notice that the company has been created or registered to do business.

 What are the penalties for CTA violations?

 The CTA provides for civil and criminal penalties for violations, including a daily $500 fine for a continuing violation of up to $10,000, imprisonment for up to two years, or both, for any person who willfully provides or attempts to provide false or fraudulent information in the disclosure or fails to report complete or updated beneficial ownership information to FinCEN.

 We regularly counsel clients on compliance with the CTA and other laws.  If you have questions about how the CTA might impact your business, feel free to contact us.