Question 1

What Is the Corporate Transparency Act?

Accepted Answer

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.

Question 2

When Does The Corporate Transparency Act Take Effect and Who Must Comply?

Accepted Answer

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.

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