The Corporate Transparency Act (CTA) went into effect January 1, 2024. As your trusted banking partner, American Community Bank & Trust realizes that many clients will be required to adhere to CTA compliance. Affecting millions of businesses, the CTA is designed to combat money laundering and other financial crimes by requiring disclosure of information to the federal government. If you are involved in a small business entity, the act may require you to electronically report information about ownership of a business to the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).
If you have not heard of the Corporate Transparency Act you are not alone. The following information, obtained from FinCen, provides a snapshot of the new federal reporting requirement.
Are you a Reporting Company?
First you must determine if your business is a “reporting company” which can apply to both domestic and foreign entities. Whether you are a newly formed small business or an existing business, you may be required to file with the Secretary of State or similar office to meet compliance requirements. Foreign reporting companies may be affected by the law if registered to conduct business in the United States.
Businesses may be exempt from reporting if they meet certain criteria. There are currently twenty-three business categories that are exempt. To read more about required reporting companies and businesses that may be exempt, refer to Section C of the FinCen Beneficial Ownership Information Reporting FAQ: https://www.fincen.gov/boi-faqs
Reporting Requires Disclosure of Beneficial Owner
The U.S. Department of the Treasury reporting requirement instructs businesses to submit a Beneficial Ownership Information (BOI) report if they are a “reporting company.” For reporting companies, the next step is to identify the beneficial owner of the company. A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control (see Question D.2) over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests (see Question D.4). Refer to Section D of the FinCen Beneficial Ownership Information Reporting FAQ: https://www.fincen.gov/boi-faqs
Due to the technical nature of the application of the CTA reporting requirements, it is always suggested to reach out to a trusted professional advisor.
FinCEN’s Small Entity Compliance Guide provides checklists and examples that may assist in identifying beneficial owners (see Chapter 2.3 “What steps can I take to identify my company’s beneficial owners?”)
When Do Businesses Report Beneficial Ownership Information to FinCEN?
If your company existed before January 1, 2024, it must file an initial beneficial ownership information report by January 1, 2025.
If your company was created or registered on or after January 1, 2024, and before January 1, 2025, then it must file an initial beneficial ownership information report within ninety calendar days after receiving actual or public notice that its creation or registration is effective.
Refer to Section G of the FinCen Beneficial Ownership Information Reporting FAQ for additional details about reporting timeframes: https://www.fincen.gov/boi-faqs
Help Exists
To avoid incurring criminal or civil penalties for not filing a beneficial ownership report, business owners need to be informed and stay informed. While the CTA establishes an initial reporting requirement, there will be subsequent times that beneficial owners will need to report certain changes. Some reasons for an updated filing seem obvious, such as a change of address. Other changes may not be so apparent, such as changing internal job duties, which may change the control an individual has within the company.
As timelines are important for updates, tracking and reporting, it’s always a good idea to involve a professional advisor such as an accountant or attorney. If you need a referral for a professional that can help you understand the implications of the Corporate Transparency Act and Beneficial Ownership Information , please contact an ACBT commercial banker today.