The Corporate Transparency Act: What Businesses Need to Know

Introduction

As of January 1, 2024, the Corporate Transparency Act (CTA) introduces sweeping disclosure requirements for many corporations, limited liability companies (LLCs), and other similar entities. Designed to combat illegal activities such as money laundering, securities fraud, and human trafficking, the CTA requires certain companies to disclose Beneficial Ownership Information (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

For businesses, this law represents a significant shift in reporting obligations. Here’s what you need to know to ensure compliance and avoid severe penalties.

Key Objectives of the Corporate Transparency Act

The CTA establishes a national registry of Beneficial Ownership Information (BOI), maintained by FinCEN, to increase transparency and reduce the misuse of shell companies. Congress determined that the absence of state laws requiring companies to disclose beneficial ownership information has enabled bad actors to obscure their identities and engage in illegal activities.

By requiring companies to disclose BOI, the CTA seeks to:

  • Prevent the misuse of shell companies.

  • Support law enforcement efforts to combat financial crimes.

  • Enhance transparency in corporate ownership.

Who Must Comply with the CTA?

Under the CTA, a “reporting company” includes:

  • Domestic entities

    Corporations, LLCs, or similar entities created by filing a document with a secretary of state or similar office in any U.S. state, territory, or federally recognized Indian tribe.

  • Foreign entities

    Companies formed under foreign laws and registered to do business in the U.S.

Exemptions

The CTA provides specific exemptions for certain entities, including:

  1. Companies with:

    • More than 20 employees,

    • Gross receipts or sales exceeding $5 million, and

    • A physical operating presence in the U.S.

  2. Subsidiaries of exempt entities.

These exemptions primarily target operational companies, focusing the law’s scope on shell companies and entities with limited or no active business operations.

What is Beneficial Ownership Information (BOI)?

The CTA defines Beneficial Ownership Information (BOI) as data related to individuals who:

  1. Exercise substantial control over the entity, or

  2. Own or control at least 25% equity in the entity.

Who is Excluded from BOI Reporting?

Certain individuals are excluded from being classified as beneficial owners, including:

  • Minor children (if a guardian’s information is reported).

  • Agents or intermediaries acting on behalf of others.

  • Employees whose control derives solely from their employment.

  • Individuals with interests only through inheritance rights or as creditors.

BOI Reporting Requirements

For each beneficial owner, companies must report:

  1. Full name

  2. Date of birth

  3. Residential or business address

  4. Identifying number

    (e.g., from a passport or driver’s license).

Timeline for Reporting Beneficial Ownership Information (BOI)

  • Newly formed companies: Must report BOI at the time of formation.

  • Existing companies: Must report within two years of the CTA’s effective date.

The information submitted will be stored in a secure, private database maintained by FinCEN. Access to this database is restricted to authorized entities, including federal, state, and local law enforcement agencies, certain financial institutions, and foreign governments (when approved).

Penalties for Non-Compliance

Failure to comply with the CTA’s BOI reporting requirements can result in:

  • Fines of up to $10,000, and

  • Imprisonment for up to two years for knowingly submitting false or incomplete information.

Businesses should prioritize accurate reporting and ensure compliance to avoid these severe penalties.

How MZLS Can Help

At MZLS, we understand the complexities and challenges businesses face under the new Corporate Transparency Act and its Beneficial Ownership Information (BOI) requirements. Our experienced attorneys provide strategic advice and support to ensure your compliance with this landmark legislation.

Here’s how we can assist:

  • Determining CTA Applicability: We’ll help you determine whether your business qualifies as a “reporting company” or falls under one of the CTA’s exemptions.

  • Preparing and Submitting BOI Reports: We’ll guide you through compiling and submitting the required Beneficial Ownership Information (BOI) to FinCEN.

  • Ensuring Ongoing Compliance: We’ll help develop systems to maintain compliance with ongoing BOI reporting obligations, minimizing risks of penalties.

Whether you’re forming a new business or managing an existing entity, MZLS is here to provide tailored legal solutions that protect your interests.

Contact MZLS Today

The Corporate Transparency Act marks a significant change in corporate disclosure laws, and compliance with Beneficial Ownership Information (BOI) requirements is crucial to avoid fines and penalties. If you’re unsure how this law applies to your business or need assistance with BOI reporting requirements, contact MZLS today.

We proudly serve clients in Puerto Rico, Virginia, Washington, D.C., and nationwide, offering expert guidance on corporate compliance and government regulations.

Call us now or schedule a consultation online to ensure your business meets these new requirements.

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