New LLC Law 2024: Understand The Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA) is a new federal law impacting limited liability companies (LLCs) and small corporations in the U.S. These businesses and other domestic entities must now report detailed information about their beneficial owners to enhance transparency.

Most LLCs face new annual reporting requirements, which could create challenges for small and family-owned businesses. It’s important to follow these regulations to ensure compliance and avoid penalties. Read on to learn more about how the Corporate Transparency Act affects LLCs.

What is the Corporate Transparency Act (CTA)?

The CTA became law on January 1, 2024, aiming to increase transparency among U.S. businesses, foreign companies, and other entities.

As part of the Anti-Money Laundering Act of 2020, the CTA requires nearly all limited liability companies (LLCs) and small corporations to submit detailed reports about ownership interests and their beneficial owners. The law introduces new annual reporting requirements, creating potential challenges for small and family-owned businesses.

What Is the Purpose of the Corporate Transparency Act?

The primary goal of the CTA is to establish a central database of beneficial owners of reporting companies created, other entities, and foreign entities. It aims to improve transparency and prevent activities such as money laundering, tax evasion, and terrorism financing.

By identifying the beneficial owners behind various corporate structures, financial institutions, money services businesses, and other entities created, the U.S. government can more effectively track and prosecute individuals involved in criminal activities. This transparency also helps protect the integrity of the U.S. financial system and promotes fair business practices.

Which Types of Companies will Be Required to Report?

Corporate Transparency Act (CTA) Reporting Requirements and Exemptions

The Corporate Transparency Act (CTA) requires various business entities, such as LLCs to disclose their beneficial ownership details. This applies to organizations formed through filings with the secretary of state or similar offices. However, there are exemptions:

Exempt Entities:

• Publicly Traded Companies: These companies already comply with strict reporting rules under the Securities Exchange Act.
• Highly Regulated Entities: Includes banks, insurance firms, credit unions, and securities brokers.
• Certain Large Operating Companies: Companies with over 20 full-time employees, more than $5 million in gross sales, and a physical presence in the U.S.
• Non-Profit Organizations: 501(c)(3) organizations are exempt from reporting.

FinCEN’s Small Entity Compliance Guide lists 23 types of entities that don’t need to report, covering various industries and organization types.

How Will Companies Know Whether They Are Required to Report?

FinCEN’s Outreach and Scam Warnings

FinCEN (Financial Crimes Enforcement Network) is actively informing businesses about their reporting duties through various outreach efforts, including online resources, press releases, and social media campaigns. Businesses can subscribe to FinCEN updates for accurate information on their reporting obligations under the CTA.

• Beware of Scams: FinCEN has warned about fraudulent groups sending fake letters and emails posing as requests for information under the CTA.
• Important: FinCEN does not initiate requests to company applicant for information without prior notice.

How Will Information Be Reported?

Submitting Beneficial Ownership Information (BOI) Reports

Reporting companies will submit their ownership information electronically through the FinCEN website. The process is designed to be straightforward and user-friendly to help businesses meet requirements. After submitting the initial reports, FinCEN will provide a receipt confirming the filing. This electronic system ensures data security and simplifies compliance for businesses.

What Information Must Be Provided In The Reports?

Details Required for Beneficial Ownership Information (BOI) Reports

Companies must provide detailed information about their beneficial owners and senior officers. This report must include:

• Full names
• Dates of birth
• Residential or business street addresses
• Unique identifying numbers from a valid ID (e.g., driver’s license or passport)

This information will be securely stored in a database managed by FinCEN. Although it is not publicly accessible, FinCEN can share it with federal, state, local, tribal law enforcement, and foreign authorities under specific conditions. This ensures a balance between privacy and the need for transparency in corporate ownership to prevent fraud.

When Do LLC Companies Need to File a BOI Report?

Timing for Filing Beneficial Ownership Information (BOI) Reports

The deadline for filing BOI reports depends on when your company was established:

• Entities Formed in 2024: Report beneficial ownership information within 90 days of receiving notice of formation.
• Entities Formed in 2025 or Later: Report beneficial ownership information within 30 days of reporting company receiving notice of formation.

Who Has Access To Fincen Boi Reports?

Beneficial ownership information reported to FinCEN is only accessible to authorized government agencies and certain other entities only. This includes federal, state, local, and tribal law enforcement, as well as some foreign authorities under international agreements. This data is not available to the public, protecting business privacy while helping the government fight financial crimes.

Are There Penalties For Noncompliance With The CTA?

Severe Penalties for Non-Compliance with the CTA

Not complying with the Corporate Transparency Act (CTA) can lead to serious consequences. Companies that fail to file required reports or provide false information can face heavy fines and other penalties.

• Civil Fines: Up to $500 per day, capped at $10,000.
• Criminal Penalties: Up to two years in prison.

These strict penalties underscore the importance of accurate and timely reporting. Businesses must understand and meet their obligations under the CTA to avoid financial penalties and possible criminal charges.

Ensure Compliance and Avoid Penalties

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New LLC Law 2024 for Small Business: Key Takeaways

Understanding your responsibilities and the importance of compliance is crucial. The new LLC law brings major changes for nearly all LLCs and corporations, with strict reporting rules to boost transparency and stop financial crimes. Here’s what you need to know:

• Reporting Requirements: Almost all LLCs and corporations must report their beneficial owners to FinCEN (Financial Crimes Enforcement Network).
• Beneficial Owner: The term refers to individuals who ultimately own or control the business entity.
• Exempt Entities: Publicly traded companies, certain large operating companies, and non-profit organizations are exempt from the reporting requirements.
• Reporting Process: Companies must submit reports online through the FinCEN website.
• Deadlines: Businesses formed before January 1, 2024, must file by January 1, 2025. Those formed after January 1, 2024, must file within 30 days of starting.
• Penalties: Not complying can lead to fines up to $500 per day, capped at $10,000, and even jail time up to two years.
• Access to Information: Only authorized government entities can see the beneficial ownership info; it’s not public.

Given the complexity and risks of non-compliance, businesses should get help from legal experts and trusted LLC services. This ensures you meet the new law’s requirements and avoid heavy penalties.