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What Is the Corporate Transparency Act?
Signed into law in January 2021 as part of the National Defense Authorization Act (NDAA), the Corporate Transparency Act (CTA) is a significant piece of legislation that imposes new reporting requirements on U.S. businesses to combat money laundering, terrorism financing, and other illicit activities.
If you’re a business owner in Elizabethtown, Kentucky or the surrounding areas, you may be wondering how the CTA may impact you. Here's what you need to know from our attorney at Caleb Bland Law, PLLC.
What Does the Corporate Transparency Act Do?
The CTA aims to create a centralized, federal registry of beneficial ownership information (BOI). The act is designed to enhance transparency, prevent shell companies from being used for illegal purposes, and increase accountability among businesses.
Specifically, the CTA requires companies to report detailed information about the individuals who own or control the company to FinCEN, a bureau of the U.S. Department of the Treasury.
Key Objectives of the CTA:
Combat money laundering, terrorist financing, tax evasion, and other financial crimes.
Improve transparency within corporate structures.
Prevent anonymous shell companies from being used for illegal purposes.
Enhance law enforcement’s ability to track illicit activities.
Who Must Comply with the Corporate Transparency Act?
The CTA requires most corporations, limited liability companies (LLCs), and similar entities formed or registered to do business in the U.S. to report beneficial ownership information.
However, not all entities are subject to the CTA’s reporting requirements. Entities that must report include corporations, LLCs, and any other similar entities such as limited partnerships and other business structures.
Entities Exempt from Reporting:
There are certain exemptions to the reporting requirements under the CTA. These exemptions generally apply to larger, well-established companies that are already subject to substantial federal and state regulation.
Examples of exempt entities include:
Publicly traded companies
Government entities
Large operating companies (those with more than 20 full-time employees, over $5 million in annual gross receipts, and a physical presence in the U.S.)
Certain regulated entities like banks, credit unions, and investment companies
If your company qualifies for an exemption, it’s important to document your exemption status thoroughly in case of future scrutiny.
What Is Beneficial Ownership Information?
The Corporate Transparency Act requires businesses to report BOI, which refers to individuals who either directly or indirectly own or control a company.
The CTA defines a beneficial owner as any individual who:
Owns or controls at least 25% of the company’s ownership interests
Exercises substantial control over the company
Required Information for Beneficial Owners:
When filing BOI reports with FinCEN, the following details must be provided for each beneficial owner:
Full legal name
Date of birth
Residential or business address
A unique identifying number from an acceptable document (such as a passport, driver’s license, or other government-issued ID)
This information must be kept up-to-date, and any changes (e.g., if a new beneficial owner acquires 25% of the company) must be reported within 30 days.
How to Comply With the Corporate Transparency Act
For businesses in Kentucky, compliance with the CTA involves understanding the filing process, keeping records updated, and being aware of reporting deadlines. Here’s a step-by-step guide to help you stay compliant:
Identify Beneficial Owners: Your first step in CTA compliance is to identify the individuals who meet the criteria of beneficial ownership. This process requires careful consideration of the company’s ownership structure.
Prepare Beneficial Ownership Information: Gather the necessary details for each beneficial owner, including their name, date of birth, and identification number. This information must be accurate and up-to-date, as inaccuracies could lead to penalties.
Submit BOI to FinCEN: Once you’ve collected the required information, you’ll need to submit it to FinCEN through their online portal. This portal is designed to securely collect beneficial ownership information and store it in a centralized database.
File Updates Promptly: Any changes to the company’s beneficial ownership must be reported within 30 days. This includes changes in ownership percentages, control, or the addition of new beneficial owners.
Maintain Accurate Records: Businesses are required to keep accurate records of their beneficial owners and report all information correctly. Regularly review your records and update them as needed.
Penalties for Non-Compliance
The consequences of failing to comply with the CTA may be severe. Both civil and criminal penalties may apply if businesses fail to file their BOI reports or provide inaccurate information.
Civil Penalties: Fines of up to $500 per day may be imposed for each day that a company fails to file its BOI report or update.
Criminal Penalties: Willfully providing false information or failing to comply with the CTA may lead to criminal penalties, including: fines of up to $10,000 and imprisonment for up to two years
Given the seriousness of these penalties, it’s crucial that businesses in Kentucky take their corporate transparency obligations seriously and work closely with legal and compliance professionals to avoid any legal exposure.
How the Corporate Transparency Act Impacts Small Businesses in Kentucky
For small businesses in Kentucky, the CTA presents new regulatory challenges. Many small companies may not be accustomed to these types of federal reporting requirements, so it’s essential to understand how the CTA will affect their operations.
Increased Compliance Costs
Small businesses may face additional administrative burdens as they’re required to gather, maintain, and update beneficial ownership information. For companies that don’t have in-house compliance professionals, this could mean hiring external consultants or legal professionals to help with full corporate transparency.
Enhanced Accountability
While the CTA increases the corporate transparency and accountability of businesses, small business owners should be mindful of the increased regulatory oversight. Documenting the company’s ownership structure may prevent compliance issues down the road.
Opportunities for Growth
Although the CTA imposes additional requirements, it may also present opportunities for small businesses in Kentucky. By creating a more transparent and accountable business environment, the CTA may make it easier for businesses to gain investor confidence, secure loans, and build lasting partnerships.
How Legal Services in Kentucky Can Help
Understanding the intricacies of the CTA may be challenging, especially for small and mid-sized businesses that may not have a dedicated corporate transparency compliance task force. This is where a reliable legal service may offer support. For businesses in Kentucky, partnering with a law firm experienced in corporate transparency can help your company remain compliant with the CTA.
Benefits of Legal Assistance
Tailored Compliance Solutions: An attorney may help identify which entities are subject to the CTA, gather the required information, and prepare reports for FinCEN.
Avoiding Penalties: With the help of a legal professional, you may reduce the risk of filing errors, avoid penalties, and stay ahead of reporting deadlines.
Exemption Guidance: If your business qualifies for an exemption under the CTA, a lawyer may help document and demonstrate your exemption status.
Ongoing Support: Reporting requirements under the CTA don’t stop after the initial filing. A legal professional can offer ongoing support to keep your records updated and help your company remain in good standing with regulatory authorities.
Contact a Business Law Attorney Today
The CTA represents a significant change for U.S. businesses, including those in Kentucky. Understanding the reporting requirements, identifying beneficial owners, and maintaining accurate records is crucial to staying compliant with corporate transparency.
For businesses based in Kentucky, a dependable business law attorney may offer tailored advice and guidance to keep you on the right track. Reach out to us at Caleb Bland Law, PLLC today for a consultation.