On January 1, 2024, the Corporate Transparency Act (CTA) was enacted. The CTA primarily aims to provide greater oversight and accountability into legal entities. The law is part of a broad effort by the US Department of Justice to crack down on white-collar crimes, including fraud, money laundering, and financing acts of terrorism.
The CTA stipulates that business entities must provide diligent reports on beneficial ownership of their organizations. Beneficial ownership data, by law, must be submitted to the Department of the Treasury’s (DOT) Financial Crimes Enforcement Network (FinCEN). Companies required to comply must submit beneficial ownership reports by the appropriate deadlines.
What are those deadlines, and how can you prepare to comply with the CTA mandate? Here is a breakdown of what to know, what to do, and how to comply with the laws.
What do you mean by beneficial ownership?
Firstly, what does beneficial ownership mean, and what does the CTA classify as beneficial ownership data?
Generally speaking, beneficial ownership refers to corporate shareholders who share a business entity’s profits or have the right to influence the entity’s operations. A beneficial owner must possess or control at least 25 percent of ownership interest in a reporting entity.
FinCEN expects each reporting entity to file four pieces of information about each beneficial owner. That reporting data includes:
- The beneficial owner’s name
- Their date of birth
- The owner’s home address
- A legal identifying number from a valid government ID
FinCEN will not accept identifying numbers from expired driver’s licenses, passports, or state-issued identification documents. If no valid documentation exists, exceptions will allow owners to supply identifying numbers from non-expired foreign passports.
When must you report beneficial ownership data?
FinCEN has classified legal entities into two types of businesses — existing entities and newly created organizations. Existing entities refer to any registered corporation that operated before January 1, 2024. Newly created entities are businesses established after the official enactment of the CTA.
Existing businesses have a full calendar year — until January 1, 2025 — to submit their beneficial ownership reports to FinCEN. The DOT recognizes that established entities have numerous beneficial owners, often located in different jurisdictions. As a result, gathering all the applicable reporting data will take time.
However, newly created businesses have only 90 days to file their reporting data. That means a newly registered corporation has until April 1, 2024, to submit their beneficial ownership reports to FinCEN.
What other reporting data must you submit to FinCEN?
Reporting entities must also submit information about their organizations with beneficial ownership data. Specifically, FinCEN asks for the name and primary address of the corporation’s main office in the reports.
Newly established entities — created on or after January 1, 2024 — must also submit beneficial data about the company founders. Generally speaking, new entities have smaller advisory boards and fewer shareholders. Therefore, the company applicants are deemed the primary beneficial owners of newly established corporations.
How to file accurate beneficial ownership reports
All qualifying business entities must submit diligent and accurate reports to FinCEN. Failure to provide accurate, transparent, and relevant information can result in stiff financial penalties and legal consequences for violating corporate entities.
Therefore, it’s incumbent upon in-house legal departments or contracted law firms to submit accurate reporting data to FinCEN. The best way to create detailed and relevant reports is to eliminate the potential for human error and missing information.
Entity management software is the best resource to assist this process. Entity management platforms like MinuteBox have built-in templates and guided widgets to help legal teams file all beneficial ownership data. The platform uses prompts and push notifications to inform legal teams if data is missing or inaccurate, eliminating risks of faulty or misrepresented reports.
Law firms and in-house legal departments have streamlined legal entity management using cloud-based solutions like MinuteBox. Now that the CTA mandate is law, there’s an even greater need for cloud-based entity management solutions.
Join the MinuteBox revolution today
Don’t fall behind on your reporting obligations — beneficial ownership reporting and general entity management reporting. Cloud-based entity management platforms will help your legal team compile all relevant data and submit diligent and accurate reports to FinCEN.
Step into the modern era of entity management and protect your entity from legal consequences. Join the MinuteBox revolution today and simplify beneficial ownership reporting.
