Corporate Transparency Act Has Taken Effect

The Corporate Transparency Act (CTA) took effect Jan. 1, mandating certain filing requirements for companies with the U.S. Treasury Department’s Financial Crimes Enforcement Network and applying to most companies. The CTA requires filings for existing companies by Jan. 1, 2025. New entities created after Jan. 1, 2024, must file reports within 90 days of their date of formation. We’ve gathered articles on the news from trusted outlets.

Registry Created

The CTA creates a national company beneficial ownership registry accessible only by law enforcement, government agencies and other officials. The purpose of the act is to prevent the illicit use of shell companies to conceal illegal activity or to facilitate money laundering, tax evasion and other criminal activities.  

(JD Supra)

Who Must Be Mentioned in Report?

People holding “substantial control” of a company must be mentioned in the report. This may include:

• Managers or officers of the reporting entity.
• Directors of the reporting entity.
• An individual with authority over the appointment of any senior office or the majority of the board of directors.

(Kiplinger)

Effect on Corporate Service Providers

The CTA creates a federal disclosure requirement mandating that lawyers, trustees and accountants declare their association with the entities they create and understand their true owners. The CTA stipulates that individuals who create new entities be reported to the government as “company applicants.” This means corporate service providers will be associated in a federal database with the entities they create and potentially with any future misdeeds of those entities.

(Financial Times)

Millions of Businesses Covered

More than 32 million entities—mostly small businesses—must file the beneficial ownership information report required by the CTA. Violations can result in a civil penalty of $500 each day the violation continues and criminal penalties of up to $10,000 and two years in prison. These penalties can be imposed on any senior officer of the business.

(Wolters Kluwer and Ellin & Tucker)

When in Doubt, File

The CTA is a substantial new reporting law that will require a type of reporting that hasn’t existed. What if an individual files and did not have to? There is no discernible negative consequence of filing if someone did not have to. Penalties only apply if an individual was supposed to file and did not do so.

(Forbes)