In an effort to prevent money laundering, terrorist financing, and other corrupt business practices, the Federal Government of the United States of America is set to begin implementing the new Corporate Transparency Act (CTA).
Once this law comes into effect, it will have a significant impact on many companies currently operating in the country.
So, continue reading to prepare yourself and get informed about this new law.
What does the new Corporate Transparency Act entail?
This rule was issued on September 29, 2022, by the Financial Crimes Enforcement Network (FinCEN). It introduces the Beneficial Ownership Information (BOI) reporting requirement.
It was passed by the U.S. Congress as part of the 2020 Anti-Money Laundering Act.
The aim of this law is to create new tools and mechanisms to prevent cases of tax or financial fraud, money laundering, corruption, terrorism, or any other activity aimed at thwarting the enforcement of Anti-Money Laundering Laws or concealing illicit operations within companies.
This will be achieved through the disclosure of the identity of the shareholders or members of companies operating in the United States.
Who is the Corporate Transparency Act in the United States aimed at?
This new rule is aimed at both American domestic companies and foreign ones.
It is also aimed at the following business structures:
- Limited Liability Company (LLC).
- Limited Liability Partnership (LLP).
- General Partnership
- Corporations (C Corp or S Corp).
- Any other structure registered with a Secretary of State.
Any of these entities may be required to file a report with FinCEN specifying who the BOIs of the company are. However, at Rex Legal, we recommend that all companies review this new regulation with a lawyer to determine whether they are exempt from this law or not.
Companies established before the law comes into effect will have one to two years to comply with it, according to current estimates.
What information is to be provided to FinCEN?
The Corporate Transparency Act requires companies to provide the following information:
- Full legal name.
- Trade name(s).
- Current home address.
- Internal Revenue Service (IRS) taxpayer identification number (ITIN).
- Reporting company’s Employer Identification Number (EIN).
In the case of a foreign reporting company that has not received an ITIN from the IRS, it must provide a tax identification number issued by the jurisdiction of its home country or residence.
For example: Registro Único de Información Fiscal (Tax Identification Registry).
Companies with their principal address in the United States must provide the mailing address of that domicile.
In cases where companies have a domicile outside the United States, they must provide the address of the primary location in the USA where they conduct their business.
Finally, FinCEN requests the following information from reporting companies for each of the beneficial owners and applicants:
- First and last names.
- Date of birth.
- Current business or residential address.
- Identification document or the FinCEN identifier assigned to the individual.
Frequently Asked Questions about the US Corporate Transparency Act
Although we’ve already explained the most important points about the Corporate Transparency Act, we understand that you may still have questions.
We’ve gathered the most frequently asked questions about this law, and we’ll now provide the answers.
Keep reading.
1. What is a Beneficial Owner (BO)?
A beneficial owner is a person who exercises substantial control over a reporting company or owns or controls at least 25% ownership in a reporting company.
This law requires the identifying information of each beneficial owner of the reporting company.
The LTC does not include:
- Minor children.
- Individuals acting as nominees, intermediaries, custodians, or agents.
- Individuals without managerial or decision-making authority.
- Persons with a future interest in the reporting company through inheritance rights.
- Creditors of a reporting company.
2. Who Exercises Substantial Control Over a Company?
A person is considered to exercise substantial control over a company when:
- They serve as a senior official of the reporting company.
They have authority over the appointment or removal of any senior executive, the majority of the board, or a similar body of the reporting company.
They direct, determine, or have substantial influence over important matters of the reporting company, including, for example, restructuring, dissolution, or merger of the company and the authority to amend the corporate and governance structure of the reporting company.
They have any other form of substantial control over the company.
3. What Should Be Understood as Ownership Interest in a Company?
Ownership interest is any instrument, contract, arrangement, understanding, or mechanism used to establish ownership, such as any interest in shares, equity, or profits in a company.
A person can own or control an ownership interest in a reporting company through any contract, agreement, or relationship (including, for example, joint ownership, certain trust agreements, and acting as an intermediary, custodian, or agent on behalf of another.
4. When Does the Corporate Transparency Act (CTA) Take Effect?
This law will come into effect on January 1, 2024. Based on these dates, companies established before this date will have one year to report to FinCEN.
On the other hand, companies established after January 1, 2024, will have 30 days to report to FinCEN.
5. Will There Be Penalties for Non-Compliance?
Yes, the penalties for non-compliance are severe, including fines of up to $500,000 and potential imprisonment.
In summary, the Corporate Transparency Act aims to prevent companies from evading anti-money laundering regulations or attempting to hide any other illegal activities.
Rex Legal is ready to assist you
We are Rex Legal, a company that will help simplify and facilitate processes involving the creation of a company in the United States.
Contact us if you have questions or need our services.
