The Corporate Transparency Act ("ACT") requires that certain entities report information about themselves and their "beneficial ownership" to the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCEN") by January 1, 2025, or possibly sooner. Below is a basic overview of the CTA and how business entities must comply with the new law.
WHO HAS TO REPORT?
The CTA applies to"reporting companies" and their "beneficial owners".
Reporting Companies - an organization created by filing a document with the secretary of state or similar office under the laws of that state or foreign organizations that do business in the U.S. Generally, a reporting company will be a corporation or a limited liability company (LLC). There are some exempt organizations that are not required to report to FinCEN, including public companies, large operating companies, and 501(c) organizations.
Beneficial Owner - Someone who directly or indirectly owns or controls 25% or more of the entity's ownership interests or someone who exercises substantial control over the entity, like a senior officer or a director.
WHAT INFORMATION NEEDS TO BE REPORTED?
The reporting requirement under the CTA entails three parts.
Company Information -company's full legal name and trade name of the company, street address, and principal place of business in the U.S.
The Beneficial Owner Information- including full legal name, date of birth, residential address, copy of U.S. Driver's License, or other U.S. government-issued ID.
The Company Applicant -(for companies formed in 2024 and after) This is the person who filed and or directed the filing of the formation/registration documents of the company.
HOW DOES THIS IMPACT TRUSTS AND ESTATES?
An executor or trustee of a trust, or similar arrangements, with authority to dispose of assets, will be considered a beneficial owner under the CTA.
WHEN DO I NEED TO FILE?
Entities in existence prior toJanuary 1, 2024, have until January 1, 2025, to file their initial report withFinCen. Entities formed or registered during 2024 have 90 days from their formation or registration date to file their initial report. Starting in 2025, initial reports will be due within 30 days of formation or registration.
WHAT ARE THE PENALTIES?
A person who willfully violates beneficial ownership reporting requirements may be subject to civil penalties of up to $591 for each day that the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000.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.
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