The laws that apply to businesses are constantly evolving. As new industries develop and old industries evolve, lawmakers enact new laws and update existing ones to better reflect the modern economy. In 2021, federal lawmakers passed the Corporate Transparency Act (CTA), which took effect as of January 1st, 2024.
The CTA received bipartisan support in part because its stated goal was to close certain legal loopholes that made money laundering difficult to track and potentially resulted in funding for terrorist organizations. Those who have invested in a business or play an executive role at one may need to learn about the CTA to ensure that their organization remains compliant.
How certain businesses must comply with the CTA
Corporate businesses and similar company structures can hide the reality of people who have an interest in a business. Therefore, one person with an interest in multiple companies could potentially launder money or obfuscate the true origins of ill-gotten capital. There are many ways that individuals with a leadership or ownership interest in multiple companies could abuse that authority.
The CTA aims to curtail such misconduct. Under the CTA, any business entity which required a filing with the Corporation Bureau of the Pennsylvania Department of State (or similar bureau of any other state) is required to complete the FinCen registration and file a Beneficial Ownership information form (BOI). If you formed an entity during the 2024 calendar year, you have 90 days to complete the registration. If you formed the entity before 2024, then you must file by no later than December 31, 2024. The filing requires the disclosure of personal identifying information of those with a beneficial ownership interest in the company. The CTA defines that as a 25% or greater stake in the company.
Once the initial report is filed, the information must be updated within 30 days of any subsequent event that makes the previously reported information inaccurate.
The law also requires that corporations and other complex business structures report the names of individuals who filed the paperwork to form the company. Businesses even need to identify those who instructed the individuals who filed the paperwork to form the company in certain cases.
There are entities which are exempt from the CTA How the CTA
Some categories of business entities are exempted from CTA compliance. These generally include regulated business entities such as publicly traded companies, insurance and banking businesses and companies with over $5 Million in revenue and more than 20 employees. Many non-profit entities are also exempt from the BOI requirements of the CTA.
There is no cost for the required registration but entities that do not make the necessary disclosures could face consequences including fines of $500/day up to a maximum of $10,000. A knowing violation can also lead to up to two years of jail time. If you need guidance or have any questions, reaching out to Max L. Lieberman & Associates, P.C. at 610-936-6612 can help to ensure compliance with the CTA and other key laws.
