Corporate Transparency Act: Navigating Exemptions, Office Requirements, and UBOs

Effective as of 2024, the U.S. Corporate Transparency Act will enforce new regulations that necessitate many domestic U.S. corporations to file reports to the Financial Crimes Enforcement Network, divulging details about their Ultimate Beneficial Owners (UBOs). This proactive measure is expected to curb illicit financial activities worldwide, such as money laundering and terrorist funding, by removing the veil of anonymity from shell companies.

This is a new law that took effect after the 1st day of January 2024, making it compulsory for U.S. companies, including government contractors, tribal entities, and commercial businesses, to present their beneficial ownership to the Financial Crimes Enforcement Network, commonly referred to as FinCEN. Businesses that were established prior to that will have up to January 1, 2025, to make their Beneficial Ownership Information Report, BOIR.  For those established after this date, it is a bit more stringent: reports must be filed in strict timelines set according to the date when each of these was formed.

Only entities that meet specific exemption requirements, such as ‘large operating companies,’ are exempted from the reporting requirements. There’s been a fair share of confusion-mostly this time around, of course, and especially that which pertains to the Corporate Transparency Act office requirements, at least so far at least in showing whether a home office qualifies, thereby making it necessary to be separate and regularly used for business purposes. The other businesses are confusingly unsure of which to apply for the $5 million gross receipts requirement. Only U.S. sales are included; when they no longer have an exemption, a BOIR is filed within 30 days.

Things get even more complicated with dissolved entities and tribal entities; rules depend on formation, date of dissolution, and the type of legal jurisdiction.

In case of failure to comply with the CTA regulations, stakeholders will be exposed to heavy civil penalties, criminal fines, and even imprisonment. FinCEN aims to release UBO information in five phases, but until April 18, 2024, it did not accept any request for accessing UBO data. Moreover, it is not yet clear when it will give a new update regarding accepting requests to access UBO information.

Suggested Read: FinCEN Issues New Guide on Corporate Transparency Act Compliance