Unveiling a New Era of Business Transparency with the Corporate Transparency Act

In the business world, transparency is not just a buzzword; it’s a pivotal aspect of corporate integrity. The Corporate Transparency Act (“CTA”) marks a significant shift in this realm, ushering in an era where understanding and complying with beneficial ownership reporting becomes crucial for every business entity.

On January 1, 2024, the CTA will take effect. The CTA will drastically change the regulatory and reporting landscape for entities classified as Reporting Companies. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) is the government authority authorized by Congress to implement the rules and procedures of the CTA. FinCEN published its final rule on September 30, 2022, which sets out the beneficial ownership information (“BOI”) reporting requirements of the CTA and how they will apply to Reporting Companies. This article provides an overview of the Final Rule.

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The Essence of the CTA Simplified

At its core, the CTA seeks to peel back the layers of corporate structures to reveal the true ownership of companies. This legislation primarily targets illicit activities like money laundering and financial fraud by making it harder for individuals to use corporate entities for such purposes.

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A Hypothetical Scenario: The CTA in Action

Imagine a small, family-owned business navigating the complexities of the CTA. They’re required to disclose detailed information about their beneficial owners.

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The CTA Grand Premiere: January 1, 2024

Mark your calendars! On this date, the CTA takes center stage, bringing significant changes to the world of reporting for Reporting Companies.

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Our Director: FinCEN, the Star of the Show

FinCEN is the authority entrusted by Congress to implement the CTA’s rules and regulations.

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Countdown to Reporting: Key Dates

• Companies formed or registered before January 1, 2024: The deadline to submit BOI reports to FinCEN is January 1, 2025.

• Companies formed or registered after January 1, 2024, and before January 1, 2025: There is only a 90-day window after formation to file your BOI report.

• Companies formed or registered on or after January 1, 2025, must file their initial BOI within 30 days of receiving actual or public notice that the company was formed or registered.

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Who Takes the Stage as Reporting Companies?

Reporting Companies include domestic entities like corporations, LLCs, and more, formed or registered in the U.S. However, don’t forget our supporting actors—trusts—which generally get a pass. Foreign Companies formed under the law of a foreign country and registered to do business within the United States by the filing of a document with a secretary of state or similar office, unless an exemption applies, also become Reporting Companies.

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Meet the Exemptions: Guest Appearances in the CTA Story

The CTA script has exemptions in place for twenty-three types of entities including:

• Large operating companies meeting specific criteria,

• Publicly traded companies and issuers of securities,

• Governmental authorities and banks,

• Securities brokers, insurance providers, and more.

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The Required BOI Information: A Detailed Script

Reporting Companies must provide the following details:

• Entity name (and any alternative trade or d/b/a names);

• Business address;

• Jurisdiction of formation and, for foreign entities, the jurisdiction of registration; and

• A unique identification number (such as a Taxpayer Identification Number (“TIN”) or Employer Identification Number (“EIN”) of the Reporting Company.

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Beneficial owner required information will include:

• Full legal name of the individual;

• Date of birth,

• Current street address (residential or office address for company applicants; current residential address for beneficial owners); and

• Unique identification number and issuing jurisdiction from either (i) nonexpired photo ID document issued by the United States government, state, local government, or tribe (e.g., passport or driver’s license), or (ii) a nonexpired passport issued by a foreign government if the individual does not possess any of the foregoing, and a copy of such applicable government-issued document.

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Meet the Beneficial Owners and Company Applicants: The Main Characters

• Beneficial Owners: These individuals have at least 25% ownership or substantial control over a Reporting Company.

• Substantial Control: Senior officers, decision-makers, or influencers.

• Ownership Interests: Any instrument, contract, arrangement, understanding, or mechanism used to establish ownership of the Reporting Company, including but not limited to, equity, stock, membership or partnership interests, capital, or profit interests, convertible instruments (regardless of whether characterized as debt) and puts, calls or other options.

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The Reporting Process: A High-Tech Set

All reports must be filed electronically through FinCEN’s Beneficial Ownership Secure System (BOSS).

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Confidentiality: The Behind-the-Scenes Security

BOI reports are classified information, not subject to FOIA requests or public access. Specific government agencies and financial institutions can access this data for authorized purposes, but as a general matter, they will not be publicly available.

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Penalties: The Legal Drama

Providing false information or neglecting CTA duties could lead to fines up to $10,000 and up to two year’s imprisonment. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information. However, FinCEN has indicated that it intends to prioritize education over penalties.

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The Closing Act: Preparing for the CTA

As we approach the CTA’s premiere, here’s your action plan:

1. Identify entities subject to BOI reports.
2. Gather necessary information.
3. Set up a system for ongoing updates.
4. Establish procedures for filing reports with FinCEN.
5. Consult an attorney for expert guidance on compliance.

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At PAG Law, we specialize in providing expert legal counsel to entities of all sizes. Our seasoned team is here to ensure that you not only understand the CTA but also navigate it smoothly.

We are here to assist and help you, whether you’re a corporation, LLC, trust, or any other entity looking to comply with these new rules.

Feel free to contact us and let us make 2024 the year of successful compliance with the CTA. Together, we’ll ensure your business continues to thrive, and the show goes on!