Your Guide to Corporate Transparency Act (CTA) Compliance
As the Corporate Transparency Act (CTA) comes into effect on January 1, 2024, it introduces a new era of corporate responsibility and transparency. The Law Office of Chad D. Cummings is a law firm serving small- and medium-sized business in Florida and Texas. Our firm is at the forefront of guiding businesses through the intricacies of this landmark legislation. With our in-depth legal expertise and commitment to personalized client service, we ensure your business not only complies with the CTA at inception but also benefits from enhanced corporate integrity and trust.
Understanding the Corporate Transparency Act
The Corporate Transparency Act, passed as part of the broader Anti-Money Laundering Act of 2020, represents a significant shift in the legal landscape for businesses across the United States. Designed to combat the misuse of business entities for illicit activities such as money laundering, tax evasion, and financing terrorism, the CTA mandates the disclosure of beneficial ownership information, thereby piercing the veil of anonymity that has long shrouded corporate ownership.
This landmark legislation affects a wide array of businesses, especially small- and medium-sized enterprises that may not have the infrastructure for complex legal compliance. Understanding the nuances of the CTA is not just about legal adherence; it is about safeguarding your business against the reputational damage and financial penalties that come with non-compliance.
Who Needs to Comply with the CTA?
One of the first steps in ensuring compliance is understanding whether the CTA applies to your business. Broadly, the CTA covers corporations, limited liability companies (LLCs), and other similar entities that are created by filing a document with a secretary of state or a similar office. This includes a vast majority of businesses operating in the U.S., regardless of their size or industry. Unless a specific exception applies, explained below, you will be responsible for ensuring compliance with the CTA on day one.
However, the CTA does carve out exemptions for certain categories of entities, primarily those which are already subject to substantial regulatory oversight. These include, but are not limited to, banks, credit unions, insurance companies, and publicly traded companies. Additionally, entities that operate under extensive federal regulation, or that meet specific size and operational criteria, may also find themselves exempt from the CTA's requirements.
The Specifics of CTA Reporting Requirements
For entities that fall under the scope of the CTA, the law requires the disclosure of specific information regarding their beneficial owners. A 'beneficial owner' in the context of the CTA is defined as an individual who, directly or indirectly, exercises substantial control over the entity or owns or controls a significant percentage of the ownership interests of the entity.
The information required to be reported includes the full legal name, date of birth, address, and an identifying number from an acceptable document such as a passport or driver’s license. This reporting is not a one-time requirement; it necessitates updates upon any change in beneficial ownership. The responsibility of maintaining accurate and current information falls squarely on the shoulders of the entity itself.
The Extreme Risks of Non-Compliance
The consequences of failing to comply with the CTA are severe. They range from civil penalties, including substantial fines, to criminal penalties, which can include imprisonment. The exact nature of these penalties is tied to the willfulness and nature of the non-compliance, with higher penalties reserved for those who knowingly provide false information or deliberately fail to provide required information. Non-compliance can result in high penalties and possible imprisonment. The escalating fines range from $500 to $10,000 per violation and jail time of up to two years.
For businesses, the risks extend beyond these direct penalties. Non-compliance can result in reputational harm, loss of business opportunities, and potential legal disputes. In a business environment increasingly focused on transparency and ethical operations, the cost of non-compliance can be significantly higher than the fines and penalties stipulated by the law.
Why Legal Expertise is Crucial in Navigating the CTA
The intricacies of the Corporate Transparency Act necessitate a nuanced understanding of its provisions and implications. Legal expertise cannot be left to chance, Google, or ChatGPT. The Law Office of Chad D. Cummings focuses on corporate and small business law and regulatory compliance, offering tailored solutions to ensure that your business is not only compliant with the CTA but also positioned to benefit from enhanced corporate governance and transparency.
Who Does the Corporate Transparency Act Affect?
According to a recent Small Business Administration report, 27,104,006 small businesses were termed “nonemployer firms” and had no employees. The Corporate Transparency Act is designed to improve business activity transparency through the reporting of Beneficial Ownership Information (BOI) and is particularly targeted to these smaller businesses.
The CTA, enacted in 2021, was passed to enhance transparency in entity structures and ownership to combat money laundering, tax fraud, and other illicit activities. It is designed to capture more information about the ownership of specific entities operating in or accessing the U.S. market.
The law was largely ignored by accounting professionals at first. However, the effective date of the Corporate Transparency Act is fast approaching on January 1, 2024, and people are starting to panic.
Companies are looking for more information on the Corporate Transparency Act, how it affects their operations, and what the details of the reporting requirements are. This presents a unique opportunity for accounting firms and tax accounting professionals to enhance their revenue streams by diversifying their service offerings.
Who Needs to File?
Reporting companies are identified as either domestic or foreign:
Domestic reporting companies are corporations, LLPs, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Foreign reporting companies are a corporation, LLCs, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. Sole-proprietorships that don’t use a single-member LLC are not considered a reporting company.
Reporting companies typically include:
- Limited liability partnerships
- Limited liability limited partnerships
- Business trusts
- Most limited partnerships, where entities are generally created by a filing with a secretary of state or similar office.
Beneficial Owners
A beneficial owner can fall into one of two categories defined as any individual who, directly or indirectly, either:
- Exercises substantial control over a reporting company, or
- Owns or controls at least 25% of the ownership interests of a reporting company.
The beneficial owners must report to FinCEN their name, date of birth, address, and unique identifier number from a recognized issuing jurisdiction and a photo of that document. If an individual decides to file their information to FinCEN directly, they may be issued a “FinCEN identifier” which can be provided on a BOI report instead of the required information.
Company Applicants
Company applicants can only be the individual who directly files the document that creates the entity, or the document that first registers the entity to do business in the United States or the individual is primarily responsible for directing or controlling the filing of the relevant document by another.
When Do Reports Need to Be Filed?
The Corporate Transparency Act comes into effect on January 1, 2024. Reporting companies that are in existence on the effective date must file their initial reports within one year.
Reporting companies created after the effective date have 30 days after receiving notice of their creation or registration. However, FinCEN has proposed to extend the initial filing deadline for BOI reports from 30 to 90 days for entities created or registered in 2024.
Reports must be updated within 30 days of a change to the beneficial ownership, e.g., through the sale of a business, merger, acquisition, or death, or 30 days upon becoming aware of or having reason to know of inaccurate information previously filed.
At The Law Office of Chad D. Cummings, our approach is client-centric and detail-oriented. We not only help you understand the legal requirements of the CTA but also implement effective strategies to meet these requirements. Our services include comprehensive analysis of your business structure, identification of beneficial owners, and preparation and filing of necessary documentation. Ongoing updates, when required, are available from our firm at a nominal, additional charge.
- Beneficial Ownership Analysis: We conduct thorough assessments to identify all beneficial owners as defined by the CTA.
- Documentation Preparation and Filing: Our attorney prepares and files all necessary documents with FinCEN, ensuring accuracy and timeliness.
- Ongoing Compliance: At additional charge, we can provide ongoing advisory services to keep your business informed about any changes in the law and how they might affect your compliance status.
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The History and Purpose Behind the Corporate Transparency Act
The CTA was born out of a growing need to combat financial crimes facilitated by anonymous shell companies. Its history is rooted in global efforts to enhance financial transparency and prevent money laundering, tax evasion, and terrorist financing. By requiring the disclosure of beneficial ownership information, the CTA aims to peel back the layers of anonymity that have allowed such illicit activities to thrive undetected.
The purpose of the CTA extends beyond the mere collection of data. It seeks to provide law enforcement, financial institutions, and other authorized bodies with critical information to investigate and prevent financial crimes. In doing so, it contributes to the integrity of the financial system and promotes a business environment characterized by transparency and accountability.
Is the CTA Constitutional?
Congress enacted the CTA pursuant to Article 1, Section 8, Clause 3, the so-called Commerce Clause, which affords Congress the authority to regulate commerce between the states. Some people, including some highly-regarded legal practitioners, believe that the CTA is a vast overreach and that Congress acted ultra vires (beyond its Constitutional authority).
Nevertheless, unless and until the law is invalidated, amended, or repealed, businesses who fail to comply with the law risk unforgiving fines and jail time as described above. Our firm is closely monitoring the developments in the courts. If and when the law is repealed or amended, we will update our service offerings accordingly.
Choosing the right legal partner to navigate the CTA is critical. The Law Office of Chad D. Cummings stands out for several reasons:
- Expertise: Our deep understanding of corporate law and regulatory compliance ensures that you receive knowledgeable and up-to-date advice.
- Customized Solutions: We recognize that each business is unique. Our approach is tailored to meet your specific needs and circumstances.
- Proactive Approach: We don’t just react to legal requirements; we anticipate them, keeping your business ahead of regulatory changes and compliance needs.
- Client-Centric Service: Our commitment to client service means we’re always available to answer your questions and provide clear, concise guidance.
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Meet Chad
/Licensed Attorney and CPA
I am an attorney and Certified Public Accountant serving Florida and Texas.
Previously, I served in operations and finance with the world’s largest accounting firm (PricewaterhouseCoopers), airline (American Airlines), and bank (JPMorgan Chase & Co.). I have also created and advised a variety of start-up ventures.
I am a member of The Florida Bar and the State Bar of Texas, and I hold active CPA licensure in both of those jurisdictions.
I also hold undergraduate (B.B.A.) and graduate (M.S.) degrees in accounting and taxation, respectively, from one of the premier universities in Texas. I earned my Juris Doctor (J.D.) and Master of Laws (LL.M.) degrees from Florida law schools. I also hold a variety of other accounting, tax, and finance credentials which I apply in my law practice for the benefit of my clients.
My practice emphasizes, but is not limited to, the law as it intersects businesses and their owners. Clients appreciate the confluence of my business acumen from my career before law, my technical accounting and financial knowledge, and the legal insights and expertise I wield as an attorney. I live and work in Naples, Florida and represent clients throughout the great states of Florida and Texas.
If I can be of assistance, please email me at chad@cummings.law, or click here to set up a free meeting.