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  • Amy Privette

Transparency is Not Just a Business Buzz Word. It's the Law under the Corporate Transparency Act!

Heads up, business owners! There's a new law coming to town. The Corporate Transparency Act (CTA) imposes a new reporting requirement for many business owners. Here's what we know and how to prepare:

The Corporate Transparency Act (CTA) was enacted by Congress in 2021 as part of an effort to make it more difficult to commit “shell company” money laundering, tax fraud, and other financial crimes. The CTA requires beneficial owners of US companies to annually disclose the following information to the Financial Crimes Enforcement Network (FinCEN):

the individual’s full legal name,

date of birth,

current residential or business street address,

and a unique identifying number from an acceptable identification document (such as a passport) or the individual’s FinCEN identifier.

Who is a beneficial owner? The CTA defines a beneficial owner is defined as an individual who, directly or indirectly (1) exercises substantial control over the entity, or (2) owns or controls not less than 25% of the ownership interests of the entity.

Any person that commits reporting violations may be held liable for up to $500 per day, not to exceed $10,000, and may face up to two years in prison for violating the CTA.

In December 2021, FinCEN released its proposed rules for the reporting requirements of the CTA; however, as of September 2022, the rules have not been finalized to the dismay of several in Congress who have urged FinCEN to "accelerate its implementation of the Corporate Transparency Act." So, although CTA is the law of the land, reporting requirements are actually delayed until the final rules are released by FinCEN. Once the final rules are approved and released, existing businesses will have anywhere from one-to-two years to disclose information about beneficial owners. Business formed after the rules are finalized will only have 14 days after formation to file disclosures.

Here are a few other key takeaways:

  • The CTA is most likely to effect small businesses since publicly traded companies or entities with more than 20 full-time employees and more than $5,000,000 in annual gross receipts/sales are exempted.

  • The CTA is federal law. Do not confuse its reporting requirements with the Annual Reports many business owners are already required to file with the North Carolina Secretary of State's office.

  • If you're a business owner, if even if it's just a small percentage, the best thing you can do now is gather together documentation and information on the business(es) and co-owners so that you will be prepared to act swiftly when the time comes.

If you have questions about how this new law impacts you or your business, please email us or call us to schedule an appointment. We are here to help you understand (and avoid costly fines)!

Phone: (919) 678-5761

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