There’s an important new federal law that llcs and corporations need to be aware of – the Corporate Transparency Act. Not complying with this law will result in hefty fines ($500/day) as well as potential criminal penalties.

We’ll break down everything you need to know to comply with the law and avoid these penalties.

What is the Corporate Transparency Act?

The Corporate Transparency Act is a new federal law that came into effect on January 1, 2024. Its primary aim is to enhance corporate transparency and combat money laundering, terrorism financing, and other financial crimes. This law impacts nearly all businesses, including LLCs and corporations, operating within the United States.

What Do I Need to Do?

Businesses must file a Beneficial Ownership Information (BOI) report with a new federal agency, the Financial Crimes Enforcement Network (FinCEN).

The BOI report serves two purposes:

  1. Ownership Disclosure: The report identifies any individuals or entities that own at least 25% of the business; and
  2. Identifying Managers: The report also discloses who the managers of the business are. Specifically, the individuals or entities that exercise substantial control over the business’s management. This includes individuals or entities who have significant influence or decision-making authority within the company. Even if they don’t meet the ownership threshold of 25%.

Who Does This Apply to?

This applies to LLCs, corporations, and other entities created by filing with a state (with the Secretary of State or similar office). Certain entities from foreign countries that registered to do business in the US are also required to file a BOI report.

On the other hand, sole proprietorships, partnerships, and other entities that are not created through filing documents with a state are not required to file a BOI report.

Who is Exempt?

Most exemptions are for entities that are already subject to substantial federal or state regulation.  A non-exhaustive list includes publicly traded companies, banks, securities brokers and dealers, tax-exempt entities, insurance companies, state-licensed insurance producers, public utilities, and accounting firms.

There is also an exemption for “large operating companies”. These are entities that:

  1. employ more than 20 full-time employees in the US,
  2. have a physical office within the US, and
  3. have filed a federal income tax return in the US for the previous year showing more than $5 million in gross receipts.

Important Deadlines

Filing the BOI report is time-sensitive so you need to be aware of the deadlines:

  1. Businesses registered before January 1, 2024: businesses have until January 1, 2025, to file a BOI report.
  2. Businesses registered on or after January 1, 2024: businesses have 90 calendar days from the date their companies register with their states to file the BOI report.

Why Compliance Matters

Ensuring compliance with the Corporate Transparency Act is crucial to avoid costly fines and legal repercussions. Failing to file the required BOI report can result in fines of up to $500 per day, which can quickly add up, as well as potential criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. And it’s not just the company that’s at risk; senior officers of an entity that fails to file a required BOI report may be held individually accountable for that failure.

The Corporate Transparency Act represents a huge change in the way businesses can disclose ownership and management information. Whether you are a well-established company or a newly formed business, understanding and complying with this law is essential. By staying informed and meeting the reporting deadlines, you can ensure that your business remains in good standing and avoids potential fine

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