Mastering Compliance: How to Ensure New Entities Align with the Corporate Transparency Act

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We’re officially halfway through the first year since the Corporate Transparency Act (CTA) went into effect, and the stakes are higher than ever for organizations creating new entities in 2024. Before we dive into the specifics of compliance – particularly for those new entities, let’s quickly revisit what the CTA is all about.

 

A Brief Overview: What is the Corporate Transparency Act (CTA)?

The CTA, effective January 1, 2024, was enacted by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Its aim is to combat money laundering, terrorism financing, and other financial crimes by requiring reporting companies to file Beneficial Ownership Information (BOI) reports for all existing and newly-created entities.

For more information on what constitutes a “reporting company” and the specific reporting requirements, please visit https://www.fincen.gov/boi.

 

New Entity Reporting Requirements

When creating a new entity in 2024, organizations must file a BOI report within 90 days of creation or registration. This report must include the following information about the entity’s beneficial owner(s):

  1. Full legal name 
  2. Date of birth 
  3. Current residential address 
  4. Unique identifying number from an acceptable document, such as a driver’s license or passport

A beneficial owner is defined as an individual who has 25% or more ownership of an entity, whether directly or indirectly. Identifying beneficial owners can become quite complex depending on how many layers there are within an organizational structure.

 

Penalties for Non-Compliance When Creating a New Entity

Failing to file a BOI report on time or willfully providing incorrect information about beneficial owners may lead to severe penalties:

  • Civil Penalties: Up to $500 per day fine (max $10,000) until the violation is corrected
  • Criminal Penalties: Imprisonment for up to two years.

 

Formulating Your CTA Compliance Gameplan

To ensure smooth compliance with the CTA, consider the following steps:

Create a Compliance Calendar

A compliance calendar accessible by all relevant team members in your organization is critical. You want to set three notifications:

  1. On the day of entity creation or registration
  2. 45 days after creations (your midway point to file a report)
  3. On the 90-day deadline

Securely Capture Required Information

Addressing internal dependencies is critical, given the number of moving parts and irregular filing deadlines. Establish a secure, single source of truth for capturing and storing all necessary information. This minimizes those internal dependencies, protects sensitive information (such as a beneficial owner’s unique identifying number), and reduces the risk of errors in BOI reports.

File BOI Reports Efficiently

Depending on available resources and the number of new entities, decide whether to file BOI reports internally or outsource this task. Regardless of which route you choose, it’s important to ensure that everyone involved understands their responsibilities to meet the reporting deadlines.

 

Simplify Ownership Identification with the Click of a Button

Centralize all your entities and relevant information in EntityKeeper to effortlessly identify direct and indirect ownership across entities. This tool can save you from the tedious process of manually calculating ownership across complex organizational structures. Sounds appealing, doesn’t it? If you like streamlining manual processes, we encourage you to schedule a no-strings attached product tour with us.

By following these steps, you can ensure your organization stays compliant with the Corporate Transparency Act, avoiding penalties and positioning yourself for long-term success. Don’t miss out on the opportunity to streamline your processes and safeguard your business – take action today!

Disclaimer: The information in this post is not intended as legal advice. Please visit the Financial Crimes Enforcement Network (FinCEN) website for the most up-to-date information regarding the Corporate Transparency Act (CTA). 

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