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Important Information for You
In an ongoing attempt to keep our clients abreast of news and changes
in the laws and regulations that may impact the prudent management of
their businesses, the following is a special update in Federal Law.
The Corporate Transparency Act (CTA)
The Corporate Transparency Act (CTA), part of the National Defense Authorization Act for Fiscal Year 2021 and effective from January 1, 2024, introduces essential changes for U.S. small business owners.
This law aims to prevent money laundering and other illicit activities by increasing ownership transparency in LLCs, corporations and similar
business entities. Individuals exercising substantial control include senior officers and other important decision-makers regardless of actual ownership.
Here is a synopsis to help small business owners understand and comply with the CTA based on the official FinCEN Small Entity Compliance Guide.
What is the Corporate Transparency Act?
The CTA mandates small business entities to report "beneficial owner" details to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Beneficial owners are individuals who own at least 25% of or exercise substantial control over the reporting business entity.
Who Must Comply?
The CTA covers smaller, privately held business entities, including LLCs commonly used by small businesses. Publicly traded companies, most financial services providers and certain large entities are exempt.
Also exempt from CTA are sole proprietorships and tax-exempt entities registered with the IRS.
What and How is Information to be Reported?
Businesses must provide FinCEN with information about their beneficial owners, such as full legal names, dates of birth, addresses, and a unique identifying number from an official document, e.g., driver’s license,
passport, etc. An image of the official document must also be provided.
FinCEN opened an online, secure reporting portal for
reporting on January 1, 2024.
Timing and Deadlines for Initial Report
- Entities created or registered before January 1, 2024
must report no later than January 1, 2025.
- Entities created or registered during 2024 must report
within 90 days of creation or registration.
- Entities created or registered on or after January 1, 2025
must report within 30 days of creation or registration.
Penalties for Non-Compliance
Willful non-compliance can result in fines up to $10,000
and imprisonment for up to two years.
Preparing to Report
Business owners should:
- Identify beneficial owners.
- They are typically reflected in the LLC’s
Operating Agreement or state entity registration filing.
- Establish procedures for updating ownership information
and changes in substantial control.
- Procedures are typically documented in the entity’s
Operating Agreement or Bylaws.
- The Small Entity Compliance Guide has helpful checklists.
Staying Compliant
Business owners should:
- Update FinCEN information on any changes in entity %
ownership or changes in substantial control,
within 30 days of the change
- Update FinCEN personal information on any change
in personal address or unique identifying documents
[eg, renewed driver’s license #, replaced passport #, etc]
within 30 days of the change.
- Stay informed about any changes in FinCEN’s guidelines
and regulations.
Maintaining Records
Maintain and update beneficial ownership information in your entity
records folder, ready to provide to FinCEN upon request.
Privacy Considerations
Reported information will only be accessible to federal law enforcement
and, under restrictions, to state and local law enforcement, financial institutions, and federal regulatory agencies.
Reported information is secure and not available for public search or access.
Impact on Small Businesses
The Corporate Transparency Act marks a significant change in reporting requirements for U.S. small businesses. Staying informed and prepared
is crucial to avoid penalties and contribute to maintaining a transparent business environment.
While the CTA targets illegal activities, it increases administrative
burdens on small businesses. Small business owners
must understand these requirements and take steps to comply.
Additional Resources:
contact our offices;
www.levertandassociates.com
216-309-1231
LeVertandAssociates@gmail.com .
This notice incorporates the latest details about the CTA, including
compliance deadlines and penalties. Small business owners are advised to consult with their legal and financial professionals for tailored guidance. Compliance with the CTA is vital to avoid legal issues and support efforts
to maintain a lawful business landscape.
Shalom,
Jay LeVert
216-309-1231
levertandassociates@gmail.com
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