Corporate disclosures for ownership, control, and other decision-making activities provide governments with a clear picture of who is profiting from a business and for what purpose.
For countries with large amounts of concentrated wealth, corporate transparency offers a way to determine whether reporting obligations have been adequately met.
While there have been many attempts by lawmakers in the United States to reduce criminal activities associated with financial reporting, none have had the impact of the Corporate Transparency Act (CTA).
What Is the CTA?
The CTA was created in 2020 and passed into law in 2021. Its purpose is to enforce legal compliance by companies operating in the United States. The CTA’s financial reporting incentives were designed to make it more difficult for shell corporations and other anonymous entities to make money.
With the adoption of the CTA, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) outlined specific steps for businesses to remain compliant. The CTA’s goal is the reduction of illicit funds by requiring reporting on the beneficial owner of any legal entity.
What Is a Beneficial Owner?
“Beneficial owner” is a legal term referring to individuals who have reaped some benefit from a company or business. This term represents an important distinction because those who profit from operations should be held accountable for decisions, and they may not always be the legal owners.
The ultimate beneficial owner (UBO) has at least a 25% controlling stake in the company, voting rights, or some other controlling interest. All companies that are required to report must have at least one beneficial owner listed for legal purposes.
What Must Be Reported?
Reporting companies, UBOs, and all other applicants are required to provide identifying information to FinCEN. Reporting companies are obligated to report their legal name and all “doing business as” names, business street address, the jurisdiction of formation or registration, and their taxpayer Identification Number (TIN).
For UBOs and other applicants, the full legal name and date of birth are required, while SSN is voluntary. The current residential address used for tax residency purposes is required as well as the number from a non-expired US state-issued ID or passport, including a scanned image of the ID.
Foreign UBOs must provide a copy of all pages from non-expired foreign passports, and corporate formation agents must also provide a business address.
What Entities Must Report?
Reporting is mandatory for any company registered to do business in the United States. This stipulation includes foreign and domestic applicants and also applies to any entities created before the CTA went into effect.
Exemptions to the CTA include regulated industries, large US-based companies with more than 20 employees that gross over $5 million a year, and any inactive entities that existed up to a year before the CTA was passed. Exemptions don’t include subsidiaries unless they fall under the regulated category or have been separately exempted.
What Is the Cost of Non-Compliance?
Existing entities must report to FinCEN, while new entities should contact the Secretary of State. Subsequent reports must be given when substantial changes occur and should include any errors or corrections within 30 days of receipt.
Failure to report can result in fines of up to $10,000 and could include up to three years in prison. Civil and criminal penalties can be enforced on non-exempted companies that fail to report in the allotted time. Penalties may be waived in some circumstances if reasonable cause is determined.
Tips to Operationalize Compliance
Reporting legal changes in substantial ownership, financials, or other important criteria must be accurate and on time. This requirement makes it essential to operationalize compliance measures to reduce the potential for errors or missed deadlines.
Having the needed technologies, human resources, and governance strategies in place is essential for maintaining compliance. By documenting and reviewing business processes, desired policies and practices can be incorporated into day-to-day operations.
Changes in management and training offer powerful solutions for introducing new processes and systems into existing management frameworks.
Athennian Is Your Partner for CTA Compliance
Don’t let your business entity be overwhelmed by CTA requirements. The cost of non-compliance is too high for simple mistakes.
At Athennian, we leverage the cloud to give you the best entity and subsidiary management platform available. We’ll assist you in keeping track of your legal, financial, and tax obligations so you can focus on your core business.
Athennian’s entity management software was designed to automate common processes and eliminate corporate risk. Whether you need data migrations, training and support services, or simply a partner for handling your administrative burdens, Athennian is here to empower you with compliant operations at an affordable price.
Find out why more companies turn to Athennian for their entity and subsidiary management. Request a customized demo with a business entity management expert to find out more about how our platform can improve your CTA compliance measures.