The Corporate Transparency Act became effective on January 1, 2024. Yet many people are still unaware of how it changes financial and reporting obligations for specific business owners.
If you run a company, it is important to understand how this law might impact your enterprise.
Penalties
Compliance with the CTA is not voluntary. The Act carries heavy penalties to compel business owners to comply. These penalties include fines of up to $500 per day and up to $10,000 per violation. In addition, continued failure to comply could lead to up to two years of possible jail time. That does not mean that the largest possible fine is $10,000. If you fail to file initially, that is one violation. Further actions taken by the government could trigger another violation, which would be punishable by an additional fine.
Transparency
The CTA aims to enhance transparency in business activities, particularly concerning company ownership. It targets the use of shell companies, that is, entities that may not have a tangible presence or active business operations but may serve various purposes, including financial transactions.
Ending anonymous ownership
One of the primary goals of the CTA is to put an end to anonymous ownership. Before this law, individuals could establish companies without disclosing the beneficial owners, making it challenging to track illicit activities such as money laundering and fraud. This new legislation requires companies to disclose their beneficial owners to the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury.
What are beneficial owners?
Beneficial owners are individuals who directly or indirectly own or control a significant portion of a company. The CTA Act seeks information about these true owners to create a more transparent business landscape.
Who does the act affect?
The CTA affects most businesses. It applies to corporations, LLCs and other similar entities. The vast majority of businesses created by filing with a secretary of state or any similar office under state law or tribal law are included under the Corporate Transparency Act.
The reporting process
To comply with the CTA, covered companies must report information about their beneficial owners to FinCEN. This includes details such as names, addresses, birthdates and identification numbers. A confidential database stores this information. It is accessible by authorized government agencies for specific purposes, such as preventing financial crimes.
Weighing the impact
While the CTA brings benefits in terms of curbing illicit activities, it also poses challenges for businesses. Compliance with the reporting requirements may entail additional administrative burdens, especially for smaller businesses. The potential penalties should make compliance with the CTA a priority for business owners in Oklahoma and across the country.
Getting this overview should help ensure your compliance with CTA legislation.