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Understanding the Corporate Transparency Act (CTA)

If you are an owner of a small business and have not heard about the Corporate Transparency Act (CTA), now is the time to learn about it. You could face stiff criminal or civil penalties if you do not comply with your new reporting duties. You might be thinking those duties only apply to public companies, and your company is private. But now, most likely, reporting duties apply to you and millions of other small businesses operating in the U.S.

What Is the Corporate Transparency Act?

The Corporate Transparency Act went into effect on January 1, 2024. Its mission is to eradicate illicit activities such as money laundering, tax fraud, and funneling money to terrorist organizations. Congress says these are common actions among owners hiding behind their companies, compromising national security and threatening the stability of the U.S. economy. Beneficial owners of small corporations, limited liability companies (LLCs), and some partnerships are now required to submit detailed ownership information to the Department of Treasury.

What Is a Beneficial Owner?

You are a beneficial owner if you have a significant ownership position in a company. Generally, this means you own at least 25 percent of a corporation’s stock or a similar membership interest in a limited liability company. The CTA also classifies those who are major influences on a company’s operation as beneficial owners.

What Information Does the Treasury Department Want?

Most small businesses must submit a Beneficial Ownership Information (BOI) Report to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). If you are a small business owner, this new duty may be easy to overlook because you have many other daily responsibilities.

Businesses chartered after January 1, 2024, must provide the government with beneficial owners’ and company applicants’:

  • Names
  • Addresses
  • Dates of birth
  • Driver’s licenses or passport identification numbers
  • The documents’ jurisdictions

Those chartered prior to January 2024 do not need to provide information about the company applicants.

Companies required to report information must also provide their:

  • Chartered names
  • Trademarks
  • The jurisdictions of incorporation or formation
  • Taxpayer identification numbers
  • The U.S. address for headquarters or operational offices if they are foreign-based businesses

Updating the BOI Report

Unlike annual report requirements that Florida imposes on companies to prevent dissolution, the BOI Report only needs to be updated when circumstances formerly reported change.

If beneficial owners move, obtain new driver’s licenses, marry or divorce and change their last names, or if operational changes take place, the company’s BOI report will probably need updating.

When You Must File a BOI Report

Companies chartered prior to January 1, 2024, must file their initial BOI reports by January 1, 2025. Companies chartered between January 1, 2024, and January 1, 2025, have 90 days from the official notice of formation to file the initial BOI reports with FinCEN. If you plan to establish a company on or after January 1, 2025, you will have 30 days to file.

Who Must File BOI Reports?

If you charter a company with the Florida Secretary of State and file annual reports, you likely must file BOI reports and updates when necessary. This includes corporations and LLCs but also some forms of partnerships in Florida. For example, general partnerships have no filing requirements, but limited partnerships do. Along with domestic reporting companies, foreign reporting companies that are registered to conduct business in the U.S. must file BOI reports. No fee is required to file.

Businesses and beneficial owners who fail to file can incur a $500-a-day fine of up to $10,000. In severe cases, the government can elect to press criminal charges.

Contact Us for Help Understanding Your Business Reporting Requirements Under the Corporate Transparency Act (CTA)

This new reporting requirement adds to business owners’ stress over stringent record-keeping and remembering to file annual reports. The attorneys at Emmanuel Sheppard & Condon understand that you may not welcome more paperwork, but it must be done. We can lift this burden off your shoulders and ensure you don’t miss your initial filing deadline. Call today so we can get to work for you.

Note: A federal court has ruled that the Corporate Transparency Act is unconstitutional as applied only to a small number of businesses. That court ruling is currently being appealed. Currently, the Act remains in force as to most covered businesses.