The Corporate Transparency Act (CTA) was enacted into law on January 1, 2021 as part of the 2021 National Defense Authorization Act. This mandate requires domestic and foreign legal entities to file a report with the Division of the Department of Treasury called the Financial Crimes Enforcement Network (FinCEN), which also regulates it.
Organizations that do not comply with the new regulation could be at risk of costly penalties and fines, reputational damage, and business discontinuity. Although the CTA effective date isn’t until January 1, 2024, legal and compliance professionals who proactively address the new requirements can simplify reporting and set the precedent for future compliance.
The clock is ticking, and you don’t want to delay on getting your ducks in a row when it comes to CTA compliance. Read ahead to understand why you should already be preparing and tips to get started.
Non-Compliance with the Corporate Transparency Act Can Be Costly
The CTA imposes specific reporting requirements on businesses, including the disclosure of beneficial ownership information. Failing to meet these obligations can result in substantial fines, legal penalties, and reputational damage.
Organizations and/or parties that opt not to comply with the CTA risk the following penalties:
- Fines of up to $500 for each day there is a willful failure to comply
- Maximum penalty of $10,000 in fines
- Prison term of up to 2 years for any party who does not comply
Further, unauthorized disclosure or use of the submitted beneficial ownership information is punishable by civil penalties of $500 for each day the violation continues and criminal penalties of imprisonment of up to 10 years and fines of up to $500,000. Proactive compliance can help you minimize the risk of facing these adverse consequences.
The Last-Minute Scramble Can Be Stressful
If you’ve ever procrastinated on a major task, you know how stressful the last-minute scramble can be. Consider too that the Corporate Transparency Act is a new reporting requirement. Since you’ve never had to submit this report, you want to give yourself ample time to understand the requirements, gather the necessary documentation, and account for potential roadblocks.
Proactive compliance ensures that you stay ahead of deadlines and avoid the last-minute scramble to meet deadlines, reducing the risk of errors or omissions in your submissions.
Your Firm’s Reputation Could Be at Risk
CTA compliance demonstrates your commitment to transparency and ethical business practices, which in turn enhances your corporate reputation. Being proactive in compliance sends a positive message to stakeholders, including customers, investors, and partners. It shows that your business operates with integrity and is willing to go the extra mile to meet regulatory requirements.
5 Steps to Prepare for Corporate Transparency Act Compliance
Proactive compliance with the Corporate Transparency Act is not only a legal obligation but also a strategic business move. In being proactive, you can avoid costly consequences, stay ahead of deadlines and changes, enhance your corporate reputation, mitigate legal risks, and foster a culture of compliance within your organization. Embracing proactive compliance ensures that your business remains on the right side of the law, maintains a competitive edge, and upholds its commitment to transparency and ethical practices.
We’ve identified five steps CRE firms can take to prepare for and address the requirements of the Corporate Transparency Act:
Step 1: Identify whether your business must file under the Corporate Transparency Act
Step 2: Determine if your business qualifies for an exemption
Step 3: Identify your beneficial owners and company applicants
Step 4: Gather the required information
Step Five: Create a document tracking system
Download the 5 Steps to Preparing for the Corporate Transparency Act checklist for a breakdown of each step.
Comply with the Corporate Transparency Act with EntityKeeper
Once effective, CTA compliance will be an annual requirement for many companies operating throughout the United States. Amongst the other annual reports and other legal requirements by which your business must abide, it can be difficult to manage deadlines and requirements.
Some modern organizations are adopting an entity management solution to better manage their entities and compliance data in real-time. By creating a plan for Corporate Transparency Act compliance and leveraging entity management software, like EntityKeeper, you can stay on top of deadlines, manage documents in one secure location, and ensure ongoing compliance.