As the fourth quarter of 2024 kicks off, businesses are running out of time to determine their compliance obligations under the Federal Corporate Transparency Act (CTA). If your company does not report its beneficial owners by the end of the year, and no exemption applies, penalties may include a $500 per day fine and jail time.
What is the CTA?
The CTA, which went into effect on January 1, 2024, requires limited liability companies, corporations, and certain other entities to file an online report with the Financial Crimes Enforcement Network (FinCEN) identifying their beneficial owners.
The CTA is expected to impact around 32 million existing businesses and around 5 million new businesses each year, with the biggest impact on smaller and unregulated businesses.
Who is a Beneficial Owner?
Beneficial owners have a 25% or more ownership interest in a company, or exercise substantial control. Substantial control may include holding senior officer positions, appointing or removing senior officers, and directing or influencing important decisions related to business, finance, or structure. Note, beneficial owners will always be individual persons, such that if a reporting company is owned by another entity, we must look to that company’s beneficial owners.
Each beneficial owner must report their full legal name, date of birth, and residential address, and they must provide a copy of their driver’s license or passport.
When Is the Report Due?
- Companies formed prior to January 1, 2024 have a December 31, 2024 deadline
- Companies formed in 2024 have 90 days after formation to file
- Companies formed starting in 2025 have 30 days after formation to file
What Does the Filing Cost?
There is no filing fee.
Is the Report an Annual Filing?
No. Your business only needs to submit a report once. However, your business must carefully track any changes to your original filing, as any changes to a company’s beneficial owners must be filed within 30 days of a change , or penalties are possible.
What Is the Impact of Current Legal Challenges to the CTA?
Although there are several cases currently pending in federal court challenging the constitutionality of the CTA, FinCEN is pushing ahead with implementing and enforcing the CTA. The deadlines for businesses to make CTA filings remain the same, so all non-exempt reporting companies must timely file their reports to avoid being penalized.
Deferring compliance or ignoring reporting obligations in hopes of judicial or legislative interference is not a worthwhile gamble. Resolutions to these challenges are too far off and uncertain. Indeed, we are seeing the CTA lead some states to consider their own state-specific transparency laws.
Can I Dissolve My Business Before I Need to File a Report?
FinCEN has made it clear that any reporting companies created in 2024 that are subsequently dissolved or cease to exist are still required to make a CTA filing. On the other hand, companies completely dissolved or that ceased to exist prior to 2024 do not have CTA reporting obligations.
The countdown is on to comply with the CTA. If you have an existing business that has not already complied with the CTA’s reporting obligations and does not qualify for one of the narrow exemptions, the time to act is now. Start to evaluate your governance structure, implement protocols for gathering relevant information, and determine how best to ensure ongoing compliance.
