On January 1, 2024, the Corporate Transparency Act (CTA) will come into effect for all corporate entities operating within the United States. All qualifying entities must report personal information on all beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

Businesses must collect the proper information and comply with reporting deadlines. Otherwise, they risk incurring non-compliance penalties in the form of expensive fines and potential indictments against stakeholders who violate the laws.

What is the Corporate Transparency Act?

The CTA is a federal piece of legislation that was first introduced in 2020. In part due to the global pandemic, and its disruptions to business operations, the full reporting guidelines were not made available until earlier this year. Legislators have set January 1, 2024, as the date that the full extent of the CTA will come into effect.

The CTA is part of the Anti-Money Laundering Act that was created to crack down on white-collar crimes. Money laundering, corporate fraud, and other financial crimes impact the health and well-being of American citizens. The federal government is demanding greater corporate transparency from entities to protect Americans from the consequences of white-collar crime.

What information must be reported to FinCEN?

Corporate entities must supply a full accounting of beneficial owners and their personal information beginning January 1, 2024. Detailed shareholder ledgers are the best resources to both organize and submit these records to FinCEN.

Beneficial owners are defined as any shareholder who holds what’s classified as “substantial control” over the corporate interests. Most beneficial owners acquire their shares through a bank or a broker.

Additionally, any shareholders with 25% or more ownership in a corporate entity are automatically deemed beneficial owners. All share transactions are documented so that the corporation can maintain detailed records on who owns what percentage of the company.

What’s classified as beneficial ownership information?

Under the CTA, corporations must file initial business ownership information records to FinCEN. It’s incumbent upon the corporation to ensure those records remain up to date. Otherwise, the company is liable for non-compliance and could face significant penalties for the errors.

If updates to the reporting information are required, here are some examples of what to include in an updated filing to FinCEN:

• Additions of new beneficial owners within the latest fiscal year
• Departures of previous beneficial owners within the latest fiscal year
• Transfers of ownership from one beneficial owner to another
• Changes in any corporate information, such as the name, address, etc.
• Corrections to any errors that are flagged in the initial filing

Corporations that know they will require multiple filings can request a FinCEN identification number to help streamline the process. Simply include the identification number on subsequent filings to show the connection to regulators.

Does the government offer security to beneficial owners?

While the purpose of the CTA is to create transparent accountability, the government will not allow personal beneficial ownership information to be made publicly available.

FinCEN will create an encrypted reporting system known as the Beneficial Ownership Secure System, or BOSS. The system will encrypt all reporting data, and only authorized members of the FinCEN team will be able to access the reported records.

Use entity management software to gather ownership data

So what’s the best way to prepare for the CTA filing deadline? Entity management software is one of the best resources to prepare for the new world order in 2024.

Entity management software is a system built by legal professionals for legal professionals. It includes a built-in compliance module to help corporations create compliance programs that protect corporate interests. The platform uses prompts to remind account managers of any upcoming date-based compliance tasks, and sends automated warnings if there are any gaps in reporting data that could leave the entity in non-compliance.

Additionally, entity management software has templates to help companies create structured organizational charts, cap tables, and shareholder ledgers. Any beneficial ownership data can be securely stored in the platform on an ongoing basis. When filings need to be made, the data can be exported and sent to the appropriate authorities at FinCEN.

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