Navigating the Corporate Transparency Act

In an effort to enhance corporate transparency and combat financial crimes, the Corporate Transparency Act (CTA) was signed into law, signaling a new era for businesses in the United States. The act went into effect on January 1st, 2024. This new legislation will dramatically change the business compliance landscape—affecting reporting requirements for corporations, LLCs, and other small business entities in the United States. The law aims to mitigate the risk of a number of financial crimes but is primarily designed to reduce the number of lawbreakers involved in money laundering and criminal financial shell companies.

So, what will this mean for legitimate businesses?

Ultimately, it will increase the reporting burden for companies doing business in the United States. “Reporting companies” (those who meet the criteria to report under the act) will be required to file a form with the Secretary of State by a given deadline. Though it may not appear to be essential for legitimate business, the U.S. government is placing a great deal of seriousness on this new law, and it will be critical for your business to meet the guidelines if you want to avoid possible fines and penalties. We understand that these things can get perplexing, so we’re here to break it down. Continue reading to learn a little bit more about the Corporate Transparency Act, who it affects, how it might impact your organization, and what you can do to stay compliant.

More about the CTA

At its core, the CTA is an anti-money laundering law passed by Congress. The law will require businesses to file a BOI (beneficial ownership information) report to the Department of Treasuries, Financial Crimes Enforcement Network (FinCEN). FinCEN is cracking down on illegal money activity—they believe that higher levels of transparency in business ownership will help to prevent criminals from hiding illegal money in shell companies or aid in catching pre-existing ones.

When it went into effect, and who it affects

The Corporate Transparency Act went into effect this year (January 1st, 2024). The organizations that the new law will affect include LLCs., corporations including S Corps, and virtually every legal entity, organized, or registered to do business in any state within the U.S. These businesses will be required to declare information relating to their owners, officers, and controlling persons to “FinCEN”.

If your entities do not have more than $5 million in gross revenue and 20 full-time W-2 employees, you will most likely be required to file disclosures under the CTA. Reporting companies typically include:

• Limited liability partnerships
• Limited liability limited partnerships
• Business trusts
• Most limited partnerships, where entities are created by filing with the secretary of state.

Additionally, if your business is set up in another country, but you are licensed to do business here in the USA, you will most likely have to file a BOI report. There are a number of exemptions to the CTA, though these are primarily for larger businesses that are already subject to a substantial amount of government regulation. To qualify as a “Large Operating Company” (LOC) to be considered exempt under the CTA, your company must have:

• At least 20 full-time employees based in the USA
• A physical office location within the United States
• At least 5 million dollars in gross receipts or sales from the previous year

The CTA does not apply to:

• Sole proprietors
• General partnerships
• Trusts

Because these entities are not created by filing a document with the secretary of state's office, they are currently exempt, though it’s important to stay aware of changing rules and regulations as this exemption could change in the future. We’ll do our best to keep you updated and ahead of government regulators.

How the CTA impacts organizations

The main impact on organizations lies in the time it takes to file and disclose beneficial ownership information. If you are a reporting company, the only significant change will be the obligation to file the Beneficial Ownership Information (BOI) report online. However, despite the seemingly straightforward process, the government is taking this matter with a lot of seriousness, making it crucial for organizations to stay compliant to avoid penalties. Put simply, if you and your shareholders (individuals who directly or indirectly own at least 25% of the entity) file the BOI report and adhere to the regulations, the CTA will not have any negative consequences for you. However, failure to comply could result in severe penalties that could significantly impact both you and your business.

What clients should be doing now to make sure they're staying compliant

As mentioned, it is crucial to prioritize compliance with these new regulations and ensure they are completed accurately and promptly. It’s important to consider that if your business was established or registered before January 1, 2024, the deadline for filing your BOI report is January 1, 2025. However, if you plan on starting a new business after January 1, 2024, you will be required to file your report with FinCEN within thirty days of receiving an official notice confirming the creation/registration of your company. In addition to this, reports must be updated within 30 days of a change in beneficial ownership, through the sale of a business, merger, acquisition, or death, or upon becoming aware of inaccurate information previously filed.

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We know legal intricacies can get overwhelming, so we’re here to help you navigate some of the complexities. To stay on top of the Corporate Transparency Act and ensure your business remains guarded from penalties, follow the steps below.

• Find out whether your company is “reporting” or exempt.
• Identify beneficial owners.
• Collect the necessary information, documents, and data from beneficial owners in order to prepare for the filing process.
• Submit the online BOI report to FinCEN.
• Establish records to track and maintain compliance as government regulations or beneficial ownership changes over time.
• Educate and train staff (namely those responsible for due diligence and compliance procedures) on the guidelines and importance of the Corporate Transparency Act.

Talk to an LHH solutions specialist today if you require guidance or assistance in recruiting temporary hires for tasks such as data and document preparation, collection, and organization.