The Corporate Transparency Act (CTA) is a critical piece of legislation designed to increase business transparency. Effective January 1, 2024, the CTA aims to combat illicit activities, such as money laundering or terrorist financing, by requiring businesses to disclose beneficial ownership information. While the CTA is a significant step forward, it also imposes new compliance obligations that, if delayed, can have severe consequences, impacting both legal standing and operational efficiency.
How Is the Corporate Transparency Act Impacting Businesses?
The CTA mandates that organizations (those classified as a ‘reporting company’) report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who directly or indirectly own or control 25% or more of an entity or who exercise substantial control over the entity. Required information includes names, birthdates, addresses, and identification numbers from an acceptable identification document (such as a passport or driver’s license). For many businesses, especially smaller ones, this requirement presents a significant administrative burden, demanding time and resources for compliance.
What Are Potential Risks if You Wait Until the Last Minute to File a Report?
Procrastination in filing your CTA report can lead to severe penalties. The most immediate risk is non-compliance with federal law, which can result in substantial penalties. Businesses that fail to report or provide false information may also face civil penalties of up to $500 per day (maximum $10,000) until the violation is corrected. Additionally, willful violations can lead to criminal penalties, such as imprisonment for up to two years.
Waiting until the last minute increases the likelihood of errors in filings. Rushed efforts to gather and verify beneficial ownership information can lead to mistakes, such as incorrect or incomplete data. These errors can trigger additional scrutiny from FinCEN and may require additional time and resources to correct.
How Will Waiting Until the Last-Minute Impact Operations?
Delaying compliance efforts can disrupt normal business operations. Collecting beneficial ownership information involves multiple steps, including identifying owners, collecting required documentation, and verifying accuracy. This process also requires coordination across various departments, such as legal, compliance, and human resources. If left to the last minute, these tasks can overwhelm staff, leading to reduced productivity and increased stress.
Additionally, severely interrupted operations and potential non-compliance can damage your organization’s reputation. Clients, partners, and investors expect businesses to adhere to regulatory requirements. Any indication of non-compliance can impact trust and may result in lost business opportunities.
Steps to Be Proactive and Ensure Compliance
To avoid the pitfalls of last-minute compliance, businesses should adopt a proactive approach to meeting CTA requirements. Below are a few best practices to ensure compliance:
- Understand the Requirements: Familiarize yourself with the CTA’s requirements, such as what constitutes a ‘reporting company’, and filing deadlines for new and existing entities.
- Train Your Team: Ensure that your team is aware of what information needs to be collected and reported and the importance of timely compliance.
- Assign Responsibility: Designate a compliance officer or team to oversee the reporting process. This individual or group should be responsible for gathering and verifying information and ensuring timely submission.
- Develop a Timeline: Create a detailed timeline that outlines all necessary steps and dates. Start the process well before the deadline to allow ample time for data collection and verification.
- Implement a System for Data Collection: Use a secure and efficient method to collect and store information. Consider using entity management software to streamline this process and reduce the risk of errors.
- Regularly Review and Update Information: Beneficial ownership information can change over time, which is why it’s important to implement a process for regular reviews and updates to ensure that records are accurate and up to date.
By taking these proactive steps, businesses can ensure they meet the CTA’s requirements without disrupting operations. Early and organized compliance efforts not only protect your organization from costly penalties but also enhance your operational efficiency.
Don’t Wait—Start Your Compliance Journey Today with EntityKeeper
Even proactive and meticulous preparation for CTA compliance can leave some teams stretched too thin. EntityKeeper’s compliance experts are here to assist your operations, whether that’s performing an account audit of missing information or filing on your behalf. Contact us today to learn more or speak with a compliance expert.
Are your entities considered a ‘reporting company’?
The CTA has complex rules that make it difficult to determine if (and when) an entity is required to file a report. Our CTA compliance flowchart can help you quickly identify which entities are considered a ‘reporting company’ and their reporting deadline. Download CTA compliance flowchart.
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).
