The Corporate Transparency Act is part of the National Defense Authorization Act. This groundbreaking legislation creates new reporting requirements for companies regarding their beneficial owners. Beneficial owners are individuals who ultimately own or control a company.
The CTA aims to crack down on the use of shell companies for illicit purposes.
Who needs to report
The CTA applies to all corporations, limited liability companies and similar entities created or registered in the United States. The only exceptions are a few types of already regulated entities, such as banks.
All covered companies should report their beneficial owners to the Financial Crimes Enforcement Network, including pre-existing organizations as well as newly registered entities.
Companies will need to provide identifying information on each beneficial owner, including their full legal name, birthdate, current residential or business address and a unique identifying number from an acceptable identification document such as a driver’s license.
Companies must also provide FinCEN with information on the reporting entity itself, including the state or Tribal jurisdiction of the registration, as well as its IRS taxpayer number.
Consequences for non-compliance
There are civil and criminal penalties for willful failure to comply with the CTA’s reporting requirements. Civil penalties can be up to $500 per day. Criminal penalties include fines of up to $10,000 and imprisonment of up to 2 years.
The U.S. Census Bureau received nearly 5.4 million business applications for new entities in 2021. Business owners, both new and existing, should understand the Corporate Transparency Act and its requirements.