Unveiling the U.S. Corporate Transparency Act


With the onset of the new year, a new federal law went into effect that likely affects you and your business. The U.S. Corporate Transparency Act (CTA), which came into effect on January 1, 2024, introduces a requirement for countless companies to furnish reports to the Financial Crimes Enforcement Network (FinCEN), disclosing personal details about their beneficial owners or individuals holding controlling interests.

The CTA aims to combat illicit activities such as tax evasion and money laundering by dismantling the veil of anonymity often associated with corporate entities.

Under the CTA, U.S. companies now are mandated to disclose information regarding individuals who, directly or indirectly, either (a) own or control at least a 25% ownership interest in the company or (b) exercise substantial control over the company. Ownership interests can take many forms, including stock, voting rights, capital or profit interests, convertible instruments, options and any other instrument or contract used to establish ownership or control.

While the CTA offers over 20 exemptions, it’s crucial to note that these exemptions are narrow and may only apply to specific industries or entities, such as publicly traded companies or financial institutions. Most of the exemptions do not apply to small and medium-sized businesses, and navigating the applicability of these exemptions requires an understanding of this law.

Key deadlines for filing a Beneficial Ownership Information (BOI) report are as follows:

1. Companies formed before 2024: BOI report due by January 1, 2025.
2. Companies formed in 2024: BOI report due within 90 days of their formation date.
3. Companies formed in 2025 or later: BOI report due within 30 days of their formation date.

Furthermore, companies must amend the BOI report in case of any changes in ownership or other relevant details within 30 days of that change.

It’s noteworthy that compliance with the CTA requires companies to submit identification documents, such as passports or driver’s licenses, to a newly established government database. While this database remains non-public, law enforcement agencies retain access to it for investigative purposes.

Failure to comply with the CTA’s stipulations, including timely filing or updating of reports, or submitting false or fraudulent information, may result in insubstantial penalties, including fines of up to $500 per day or fines up to $10,000 and/or imprisonment for up to two years for criminal infractions.

We stand prepared to assist you with navigating these regulatory requirements or addressing any other legal matters. For questions regarding your obligations under this new law or any other concerns, please don’t hesitate to reach out to your Encore Law attorney or contact Ara Babaian directly at ara@encorelaw.com or (213) 328-7683.

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