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In an effort to combat money laundering, terrorism financing, and corrupt business practices, the federal government of the United States of America has enacted the Corporate Transparency Act (CTA). This regulation, issued by the Financial Crimes Enforcement Network (FinCEN), aims to enhance visibility into business ownership, a significant change that will affect numerous companies operating in the country. In this article, we will delve into the key aspects of this new law and who is required to comply with it.

Breakdown of the Corporate Transparency Act

The Corporate Transparency Act, enacted on September 29, 2022, introduces the requirement to report information about beneficial owners (BOs), also known as beneficial owners. This law was approved by the United States Congress as part of the Anti-Money Laundering Act of 2020. Its primary objective is to provide tools and mechanisms to prevent situations of tax or financial fraud, money laundering, corruption, terrorism financing, and other illicit activities in the business environment.

Who is affected by the Corporate Transparency Act in the U.S.

The CTA impacts both domestic U.S. companies and foreign companies operating within the country. Furthermore, its scope extends to various business structures, including:

  • Limited Liability Company (LLC).
  • Limited Liability Partnership (LLP).
  • General Partnership.
  • Corporations (C Corp o S Corp).
  • Any other entity registered with a Secretary of State.

All entities falling within these categories are subject to the requirement of filing a report with FinCEN, detailing who the beneficial owners of the company are. It is important to note that companies in existence before the law’s effective date have one or two years, based on current estimates, to comply with this new obligation.

Information required by the Corporate Transparency Act

The Corporate Transparency Act mandates that companies provide the following information:

  • Full legal name.
  • Trade name(s).
  • Current residential address.
  • Jurisdiction of formation.
  • Internal Revenue Service (IRS) taxpayer identification.
  • Employer Identification Number (EIN) of the reporting company.

Frequently Asked Questions about the U.S. Corporate Transparency Act

Despite having explained the fundamentals of the Corporate Transparency Act, questions often arise. Here are answers to some common questions:

Who is considered a beneficial owner (BO)?

A beneficial owner is a person who exercises substantial control over a company that reports to FinCEN or who owns or controls at least 25% ownership in a company reporting to FinCEN. The law requires the identification of each beneficial owner of the reporting company.

Who is considered to exercise substantial control over a company?

A person is considered to exercise substantial control over a company when they hold a high-level position within the company, have authority to appoint or remove top executives, or make significant decisions for the company.

What is meant by ownership interest in a company?

Ownership interest refers to any instrument, contract, or agreement that establishes ownership, including shares, capital, or profits. A person can own or control ownership interest through various mechanisms.

When does the Corporate Transparency Act come into effect?

The law will take effect on January 1, 2024. Companies in existence before this date will have one year to comply with the reporting requirements, while companies formed after this date will have 30 days to do so.

What are the penalties for non-compliance?

Penalties for non-compliance are severe and can include fines of up to $500,000 and potential imprisonment.

Compliance with the U.S. Corporate Transparency Act

The U.S. Corporate Transparency Act represents a significant step toward preventing money laundering and promoting more transparent business practices. Companies, whether domestic or foreign, must be prepared to meet reporting requirements and ensure that their corporate structures comply with the regulations. At Gutierrez Pujadas & Partners, we strongly recommend that all companies review this new regulation with legal counsel to ensure compliance and avoid sanctions.

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