Corporate transparency. Why has this buzzword been dominating chatter among business leaders in a multitude of sectors?
The recently passed Corporate Transparency Act is chief among the reasons this word is on everyone’s lips. The act goes into force on January 1st, 2023.
However, the CTA is not the only factor that is causing small business owners, leaders of midsize companies, and executives to focus on becoming more transparent.
Recently, business leaders have sensed a shift in client expectations. Customers in both the business-to-consumer (B2C) and business-to-business (B2B) spaces expect companies to be transparent about their practices, billing procedures, and values.
Business leaders who fail to embrace corporate transparency could potentially alienate their client base. To make matters worse, they may also incur fines and other penalties if they violate provisions of the CTA. In light of these facts, ensuring corporate transparency is key for 2023.
What Is the CTA (Corporate Transparency Act)?
The CTA (Corporate Transparency Act) was included in the National Defense Authorization Act for Fiscal Year 2021 (NDAA). The NDAA also included several other acts, such as the Anti-Money Laundering Act of 2020 (AMLA). The CTA falls under the umbrella of the AMLA, although it is a separate act.
Under the CTA, specified businesses are required to report “beneficial ownership” of a company or organization to a federal oversight organization known as the Financial Crimes Enforcement Network. Commonly known as FinCEN, this organization is a bureau of the United States Department of the Treasury.
FinCEN will use the information to create a registry of beneficial owners. The registry data will not be accessible to the public. Instead, it will be available to financial institutions and law enforcement agencies in certain instances. The CTA’s purported purpose is to guard against money laundering and the funding of terrorist organizations.
According to the provisions of the CTA, some types of trusts, partnerships, LLCs, and corporations may potentially have to file a report with FinCEN.
However, the CTA lists nearly two dozen exemptions. Most of these exemptions apply to entities that are subject to extensive regulation at the federal or state level. For example, banks, insurance companies, publicly traded companies, and nonprofit organizations are exempt.
Failing to comply with the CTA can result in civil and criminal liability. In terms of civil repercussions, violators may incur fines as high as $500 per day. Criminal penalties may include prison sentences of up to five years and fines as high as $250,000.
Corporate Transparency: An Essential Business Practice
If your organization is required to comply with the CTA, then you must start addressing corporate transparency immediately. You should closely review reporting and filing requirements, as the act’s go-live date is rapidly approaching.
Even if the CTA does not apply to your business, you should explore ways to increase overall transparency. Proactively improving corporate transparency yields several benefits for the organization.
Most notably, increasing transparency can help nurture feelings of trust among clients. In turn, this can boost their average lifetime value, improve customer satisfaction, and help you increase your retention rates.
Additionally, improving transparency will enhance your brand image among prospective clients. This will make it easier for you to acquire new clients, generate more revenue, and achieve your growth goals.
Ultimately, increasing corporate transparency will make your entity more competitive. It will allow you to differentiate your organization from other entities within your sector.
As an added benefit, voluntarily working to improve transparency will help you be ahead of the curve should the federal government expand the scope of the CTA in the future.
How Entity Management Software Facilitates Improved Transparency
You should now understand why you need to increase corporate transparency. But what is the best way to do that?
While there are many strategies at your disposal, you should focus on enhancing your entity management capabilities. You can accomplish this by investing in Athennian’s innovative entity management software.
Our entity management software facilitates workflow automation, assists with document assembly, provides reminders for annual filings, generates tax charts, and increases organizational visibility.
Athennian’s solution also increases corporate transparency by shattering data silos and allowing your legal team to replace antiquated entity management tactics with modern alternatives.
Once you implement our technology, you can access all entity management–related data from a single, unified interface. This user-friendly platform takes the headache out of entity management while simultaneously giving you the ability to share important insights with clients.
Our technology can also be a valuable tool in your efforts to ensure compliance with the CTA and other regulatory laws. With Athennian, missed filing deadlines will become a thing of the past, as our solution provides reminders and assists with document preparation.
Are you ready to experience the power of Athennian for yourself? Schedule a customized demo with one of our entity management professionals.