The Corporate Transparency Act (CTA), recently passed by the U.S. Congress to combat money laundering and criminal activities, imposes stringent reporting—disclosure—requirements on certain businesses, termed “Reporting Companies.” Under the CTA, Reporting Companies must disclose details about their owners—formally known as beneficial ownership information (BOI)— to FinCEN, a bureau of the United States Department of the Treasury. Non-compliance with the CTA can lead to severe civil and criminal penalties, including imprisonment for up to two years.
Most corporate entities—including startups—in the United States qualify as so-called “Reporting Companies” and, thus, must report to FinCEN details about their owners, including any individuals who hold a 25% or higher ownership interest in the company or any individual who exercises “Substantial Control” (discussed below) over corporate affairs.
According to FinCEN, Substantial Control is defined by four criteria:
- Being a senior officer,
- Having authority to appoint or remove key officers or a majority of directors,
- Being an important decision maker,
- Having any other significant influence over the Reporting Company.
Thus, startups and existing companies should take proactive steps to ensure compliance with the CTA. Failing to do so can result in penalties.
For additional information about CTA compliance or to ensure that you are CTA compliant, please contact us at info@mnklawyers.com
