By Steven Rogé, MBA, CFP®, AIF®
Chief Investment Officer & CEO
The U.S. government instituted a new law called the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act for Fiscal Year 2021. A game-changer for business accountability, this landmark legislation aims to curb money laundering, terrorism financing, and other forms of financial crimes by illuminating the ownership structures of companies operating within the United States.
Who Will Be Impacted by The Corporate Transparency Act?
- Corporations: Public and private corporations, regardless of size, including both domestic and foreign corporations operating within the United States.
- Limited Liability Companies (LLCs): Limited liability companies, popular business organizations known for their flexibility, are included in the entities required to report beneficial ownership information under the CTA.
- Similar Entities: Entities like corporations and LLCs, capturing various business structures, including partnerships, business trusts, and other similar legal structures.
What Are the Key Elements of the Corporate Transparency Act:
- Mandatory Reporting of Beneficial Ownership: The CTA mandates that businesses report information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners include individuals who directly or indirectly control at least 25% of the ownership interests and those with significant managerial control.
- Creation of a National Database: The ownership information will be stored in a confidential, secure, and non-public database maintained by FinCEN. This database will serve as a crucial tool for law enforcement agencies, assisting them in investigating and combating financial crimes.
- Exemptions and Limitations: Some businesses are exempt from the reporting requirements, such as publicly traded companies, certain financial institutions, and businesses with over 20 full-time employees and over $5 million in gross receipts.
Why Does the Corporate Transparency Act Matter for Business Owners?
- Enhanced Accountability: The CTA promotes corporate accountability by requiring businesses to disclose their owners. This increased transparency helps mitigate the risk of fraudulent activities, money laundering, and other illicit financial practices.
- Leveling the Playing Field: Small and medium-sized businesses are often less scrutinized, making them susceptible to illicit financial activities. The act promotes fair competition and a more secure business environment by leveling the playing field and ensuring that all businesses disclose beneficial ownership information equally.
- Global Reputation and Compliance: The CTA enhances the global reputation of U.S. businesses. Compliance with such regulations is important as the international community increases efforts to combat cross-border financial crimes, money laundering, and terrorism financing.
- Law Enforcement Tools: Creating a comprehensive national database equips law enforcement agencies with powerful tools to investigate and prevent financial crimes. This not only aids in prosecuting wrongdoers but also acts as a deterrent to those considering engaging in illicit activities.
What Are the Penalties for Not Complying with the Corporate Transparency Act?
The Corporate Transparency Act imposes significant penalties on businesses that fail to comply with its reporting requirements. These penalties are designed to incentivize adherence to the new regulations and underscore the importance of transparency in the corporate landscape.
- Civil Penalties: Non-compliant businesses may face civil penalties of up to $500 per day for each day the violation persists. This can amount to substantial fines, particularly for businesses that remain non-compliant over an extended period.
- Criminal Penalties: In addition to civil penalties, intentional or willful violations of the reporting requirements may result in criminal penalties. Individuals found guilty of knowingly providing false or fraudulent beneficial ownership information can face fines of up to $10,000 and imprisonment for up to two years.
- Revocation of Entity Status: Persistent non-compliance may lead to the revocation of a business entity’s legal status. This drastic consequence can have severe implications for the operation and continuity of the business.
- Ineligibility for Federal Contracts: Non-compliant businesses may become ineligible for federal contracts and specific federal assistance programs. This can significantly impact the growth and sustainability of the business, making compliance with the CTA a crucial consideration for those engaging with the federal government.
The Corporate Transparency Act introduces a new era of corporate transparency and accountability, and it’s important for business owners to understand the reporting requirements so they can avoid significant financial and legal consequences. By complying with these regulations, businesses contribute to a more secure and transparent business environment while safeguarding their interests from potential penalties and reputational damage.
To learn more about the Corporate Transparency Act please contact our team of CERTIFIED FINANCAL PLANNERTM (CFP®) professionals at 631.218.0077 or at firstname.lastname@example.org.
R.W. Rogé & Company, Inc. is an independent, fee-only financial planning and investment management firm serving clients locally and virtually across the country, with Long Island, New York, Beverly, Massachusetts, and Naples, Florida office locations. R.W. Rogé & Company, Inc. was founded on a “client first” culture and proudly commits to acting in your best interest as a fiduciary. We help clients Plan, Achieve, and Live® the life they want since 1986. To learn more about how we do this, click here.