On January 1st, 2024, the U.S. government introduced new reporting requirements under the Corporate Transparency Act. This legislation seeks to combat elicit financial activities such as money laundering by mandating that private companies submit detailed information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). 

If you are a privately held business that operates in the U.S., it’s critical that you understand all of your financial obligations, such as how the CTA applies to you. Fortunately, our financial experts at SD Associates, P.C. are here to help. 

What Does the CTA Require?

The CTA requires that all U.S. businesses (with some exceptions) file information about their beneficial owners with FinCEN. This reporting aims to make it easier to identify individuals who are attempting to conceal illegal activity behind corporate structures by enhancing transparency around who owns and controls companies.

Per this legislation, companies are required to file their Beneficial Owner Information (BOI), including information like names, birthdates, and addresses of those who own or control 25% or more of the company. The BOI reporting requirements apply to new and existing companies, although businesses registered before January 1st, 2024, may have slightly different compliance timelines compared to newly formed ones. 

Are You Exempt from Reporting

While the CTA applies to most companies, there are 23 exceptions from the reporting requirements, including:

• Publicly Traded Companies
• Nonprofits
• Certain Large Operating Companies

For large operating companies to be exempt, they must meet specific criteria like having over 20 full-time employees in the U.S. and generating over $5 million in annual revenue.

The FinCEN Small Entity Compliance Guide includes a convenient checklist to make it easy for companies to determine whether or not they fall under one of these exemptions. Businesses must carefully review this information to ensure they understand their reporting obligations.

Defining a Beneficial Owner

A beneficial owner is someone who, directly or indirectly, holds significant control over a company or owns at least 25% of it. Businesses must evaluate their organizational structure to identify all beneficial owners. While the concept of substantial control can be broad, there are several ways an individual can exercise substantial control, such as: 

• Serving as a senior officer
• Having the authority to appoint or remove officers and/ or directors
• Making key decisions regarding the company’s strategy or financial direction
• Exercising any other form of influence or control, as defined by FinCEN compliance guidelines

Who is a Company Applicant?

Only companies created or registered after January 1st, 2024 must report their company applicants. Generally speaking, a company applicant is the individual who filed the paperwork to register the business. If multiple people were involved in the filing, the person who had primary control over the registration process would be considered as the applicant. 

How to Ensure Compliance

In order to comply with the new reporting requirements, companies should adhere to the following steps:

• If applicable, identify their beneficial owners and company applicants
• Review the FinCEN checklist to confirm whether they qualify for any exemptions
• Submit the necessary BOI to FinCEN by the necessary deadline

It is crucial to understand your obligations as failure to comply with the CTA could lead to significant fines and penalties. 

Contact SD Associates, P.C. Today for Financial Guidance

For more information about the CTA and how it may impact your business, contact SD Associates, P.C. Our team will guide you through the compliance process to ensure that your company meets all its legal obligations.