What Is the Corporate Transparency Act?
Effective January 1, 2024, the Corporate Transparency Act will require almost all business entities in the United States to disclose information about their the beneficial owners and control persons to the Financial Crimes Enforcement Network (FinCEN).
The CTA will place a significant burden on most entities formed for the purpose of holding real estate investments, and other small businesses. Its requirements apply to owners, managers, members, and officers of nearly all limited liability companies, limited partnerships, and corporations. If you have an ownership interest in or have "control" over any of these types of business entities, it is highly likely that this law will have a direct impact on you, your company and your investments.
Who Needs To Report Information?
The CTA's reporting requirements, while broad in application, are nuanced. Compliance with the CTA is required by the following:
Reporting Companies: Reporting companies must submit information and personal details of each Beneficial Owner. For new entities formed or registered on or after January 1, 2024, information on all individuals identified as Company Applicants must be provided to FinCEN.
Beneficial Owners: A Beneficial Owner is broadly defined as individual who directly or indirectly exercises Substantial Control over the Reporting Company or owns or controls 25 percent or more of the ownership interests of the Reporting Company. An individual is considered to have Substantial Control over a Reporting Company if the individual meets the criteria of functioning as a senior officer, appointing or removal authority, important decision-maker, or as a catch-all, such as a representative of the company on a board of directors.
It is therefore not always clear-cut as to whether an individual would be considered a Beneficial Owner.
What Are The Possible Penalties?
Non-compliance with the Corporate Transparency Act carries substantial penalties, exposing businesses to significant financial and legal risks. Providing false or fraudulent Beneficial Ownership Information, or failing to report complete or updated information, can lead to civil penalties of up to $500 per day of violation. Willful non-compliance may result in fines of up to $10,000 and/or imprisonment for up to two years. It's important to note that these penalties apply to both Reporting Companies and individuals who wrongfully disclose BOI report information without authorization.
Considering the complexity of the CTA and the continuous updates by FinCEN, it is crucial for companies to fully understand the reporting requirements.
Please contact us if you have any questions about how the CTA may impact your real estate holding company or business.