The Corporate Transparency Act: What You Need to Know About Beneficial Ownership Reporting

In an effort to enhance financial integrity and combat illicit activity, the Corporate Transparency Act (CTA) requires most U.S.-based businesses to disclose their Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). If you own or manage a business, understanding and complying with these requirements is essential to avoid penalties and ensure your operations continue smoothly.

What is the Corporate Transparency Act (CTA)?

As part of the National Defense Authorization Act, the U.S. congress enacted the CTA in 2021. Its primary purpose is to combat financial crimes such as money laundering, terrorism financing, and corruption by increasing transparency about who owns and controls companies operating in the United States. The CTA enhances national security and financial system integrity by mandating that businesses disclose their beneficial owners, thereby preventing the misuse of anonymous entities for illicit activities.

Key Provisions of the Corporate Transparency Act

1. Beneficial Ownership Reporting Requirements: The CTA requires certain companies to report information about their beneficial owners—the individuals who directly or indirectly own or control at least 25% of the company or exercise significant control over it.
2. Who Must File: Most corporations, limited liability companies (LLCs), and other similar entities formed or registered to do business in the U.S. must file these reports with the FinCEN.
3. Exemptions: Certain entities, such as publicly traded companies, banks, credit unions, and large businesses with more than 20 employees and over $5 million in gross receipts, are exempt from the reporting requirements.
4. Information to be Reported: Companies must disclose full legal name, date of birth, address, and identification number (from a government-issued ID) of each beneficial owner.
5. Reporting Deadlines: New companies must file at the time of incorporation or registration. Existing companies must comply by January 1, 2025 (or sooner, depending on implementation updates).
6. Confidentiality: The information provided is stored in a secure database maintained by FinCEN and is accessible only to authorized parties, such as law enforcement and certain financial institutions conducting due diligence.
7. Penalties for Noncompliance: Failing to report or providing false information can result in civil penalties and criminal fines.

Why is important reporting beneficial ownership important?

Reporting beneficial ownership is crucial because it helps prevent the misuse of anonymous entities for illicit purposes. When true ownership is hidden, it can lead to sanction evasion, money laundering, and the financing of crimes such as terrorism, all of which pose significant threats to national security. Industry experts estimate that shell companies cost the U.S. economy approximately $70 billion annually. The CTA and BOI reporting requirements address these issues by promoting transparency and curbing the use of shell companies and opaque corporate structures to conceal those behind financial transactions. To comply with the CTA, you must file to prevent criminal and civil penalties. Willfully violating the reporting requirement or failing to update your beneficial ownership information can result in serious consequences, including civil penalties up to $500 per day until the violation is resolved or criminal penalties up to $10,000 and imprisonment for up to two years.

Beware of Scams of When Filing

When filing your BOI, it’s important to stay vigilant against scams. Scammers may try to exploit you by offering to file your BOI for a fee, however, filing your BOI is always FREE through FinCEN’s official portal. Be cautious of requests for payment, urgent or delinquent notices, or fraudulent forms claiming to be from FinCEN. Additionally, avoid clicking on suspicious links or QR codes, as these can be phishing attempts designed to steal your information. Never provide personal details in response to unsolicited emails or phone calls. FinCEN will not contact you about penalties via phone or email. To ensure you are filing safely, use only the official FinCEN website.

Stay Compliant & Avoid Penalties

While there are over 20 exemptions (for example, publicly traded companies and large businesses meeting specific criteria), the majority of small businesses will need to file their BOI. The CTA is a significant step toward financial transparency, and staying compliant is essential for your business. Start the process today to ensure you’re meeting all requirements and avoiding potential penalties. For more information about how to file, what information is needed to file, deadlines for reporting companies and exemptions, check out our help center article Corporate Transparency Act: Filing for Beneficial Ownership. For the most up-to-date info on how to stay compliant and penalties for noncompliance, we encourage you to visit FinCEN’s website.