The Corporate Transparency Act (CTA) takes effect on January 1, 2024. Within a year from that date, existing businesses will have to file either
- Confirmation of their Corporate Transparency Act exemptions, or
- A beneficial ownership information (BOI) report to the United States Treasury’s Financial Crimes and Enforcement Network (FinCEN).
That’s a lot of acronyms. More simply, the CTA aims to combat illegal activities like money laundering by augmenting business transparency. Specifically, the CTA requires businesses to identify their true owners.
The attorneys at Massingill know how much work running a small business can be. Most of the Texas business owners we represent excel at business and trust us to take care of things like the CTA.
In this blog, we will explain the CTA, help you understand your obligations under the CTA, and let you know how the business attorneys at Massingill can help you comply. If you have questions, please contact us today.
What Is the Corporate Transparency Act?
Congress passed the CTA in 2022 as part of the Anti-Money Laundering Act of 2020. The CTA requires that most corporations, LLCs, and similar entities disclose their BOI.
The goal of the CTA is to identify and limit illegal activities like money laundering and financial fraud by identifying the entities and individuals who really own the business.
Beneficial owner information generally refers to all the details that identify the entities and persons who ultimately own, control, and benefit from a company. This is especially important in those scenarios where the ownership or control of a business is not immediately apparent.
The rule defines beneficial owners as “any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company.”
Primary components of BOI generally include:
- Identity. This includes the name, date of birth, nationality, and Social Security or other personal identification numbers of the individual or tax ID numbers of the entity.
- Ownership percentage. This includes details on the percentage of ownership or control the individual or entity has in the business.
- Nature of control. This relates to if and how the beneficial owner applies control over the business. This will include the beneficial owner’s voting rights, influence in hiring decisions, and say in business decisions.
- Address. The residential or business address of the beneficial owner.
The idea of BOI is already relevant in financial and legal companies, which have always been more susceptible to money laundering, tax evasion, and other unlawful activities.
Collecting, verifying, and supplying the government with BOI is already a critical though routine part of due diligence with banks, insurance companies, law firms, and any company in the business of financial transactions.
When Does The Corporate Transparency Act Take Effect and Who Must Comply?
The CTA primarily applies to smaller, privately held companies. Publicly traded companies and businesses like the ones mentioned above are generally exempt, as they already participate in reporting requirements that resemble those of the CTA. For businesses new to the Corporate Transparency Act, 2024 will be the inaugural year.
Under the CTA, businesses that already exist on January 1, 2024, must provide BOI within one year. Businesses forming after January 1, 2024, must provide BOI within 30 days of formation. Additionally, businesses must update FinCEN with any changes in their ownership.
Businesses that already report BOI, some tax exempt organizations, and those businesses that already engage in a federal financial reporting system are likely exempt from the CTA.
A business that fails to comply with the CTA will face significant penalties, including hefty fines and possible imprisonment.
If there is any question about whether your business is exempt or the scope of your reporting requirements, please give Massingill a call.
Our attorneys are committed to seeing our clients and Texas businesses flourish. We have a long history of representing businesses of all sizes with requirements of all kinds.
Impact on Texas Businesses
The CTA introduces an additional administrative requirement for all Texas businesses. But it is nothing that we can’t handle.
Small business owners will need to be vigilant in maintaining accurate ownership information. The CTA also generally signals greater emphasis on transparency and due diligence with respect to who is doing business in Texas.
While the CTA might raise some privacy concerns by requiring the disclosure of sensitive information, it also contains safeguards to protect that information.
Access to the information gathered via the CTA is limited to certain government agencies and some financial institutions tasked with conducting due diligence.
How Massingill Can Help
For years, Massingill has been helping Texas businesses thrive. To thrive, you need to comply with all the rules and regulations. We can help you:
- Understand your obligations. Let’s have a conversation. We can look at your business and help you identify who qualifies as a BOI.
- Gather information. We can help you collect accurate data from all beneficial owners so you can file timely reports.
- Maintain records. We can document everything you send to FinCEN along with any correspondence from and with other regulatory agencies.
- Stay informed. The regulatory landscape is always evolving, and so is your business. We can help you stay ahead of things and keep you apprised of future developments.
Massingill wants to help you protect your interests so you can focus on your broader business goals.
The Corporate Transparency Act will introduce a new requirement for businesses in Texas. While it may seem daunting now, with Massingill’s top-notch legal guidance, complying with the CTA can be a smooth and manageable part of your regular business operations.
Call or email us, and let’s talk about what we can do for you. We have helped hundreds of businesses stay informed so they can be positioned for success in an increasingly challenging business landscape.
Where You Can Find Our Austin, TX Office
Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.
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