The Corporate Transparency Act (CTA) is significant legislation requiring immediate action by businesses. It aims to enhance transparency in corporate ownership and combat illicit activities. 

CTA’s Purpose: 

The CTA was enacted to address the issue of anonymous shell companies being used for illegal activities and to protect our country’s financial system. It is intended to prevent money laundering, terrorism financing, and tax evasion. It facilitates the tracking of money that has been sourced through criminal activity and protects the U.S. financial system from criminal abuse and safeguards national security.

Key Provisions: Reporting Companies and Beneficial Owners

Under the CTA, certain entities, called Reporting Companies, are required to report information about the company and their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Reporting Companies include, unless specifically exempted, any corporation, LLC, Limited Partnership or similar entities created by filing a document with a state office. (In Texas, you’re a Reporting Company if you file a formation document with the Secretary of State.)

Beneficial Owners are individuals who directly or indirectly, through any contract, arrangement, understanding, or relationship or otherwise:

 

 

• exercise substantial control over a company; or

 

 

• own 25% or more of the equity interest of a company:

 

 

Reporting Requirements:

The CTA sets out the reporting requirements for businesses. Reporting Companies must report the following:

 

 

• full legal name of the company:

 

 

• trade name or “doing business as” name (d/b/a);

 

 

• current street address of principal place of business in the U.S. (not a Post Office Box);

 

 

• state of formation; and 

 

 

• TIN/EIN (“Disregarded Entities” must use a SSN).

 

 

The reporting requirements for Beneficial Owners are slightly different. The reporting information for Beneficial Owners includes:

 

 

• full legal name of individual;

 

 

• date of birth

 

 

• current residential street address;

 

 

• unique identifying number from passport, state ID, or driver's license; and

 

 

• image of the individual’s passport, state ID, or driver's license. (A scanned copy of the Texas Driver’s License, front and back, is usually uploaded during filing.)

 

 

All information is collected by Financial Crimes Enforcement Network (FinCen), www.fincen.gov and stored in the nonpublic database called Beneficial Ownership Secure System (BOSS).

Impact on Texas Businesses

For businesses operating in Texas, the CTA introduces new compliance obligations. Businesses ensure they accurately identify and report their beneficial owners to FinCEN. This requirement applies to both domestic and foreign entities registered to do business in Texas. To comply with the CTA, businesses must: identify their beneficial owners, collect the required information, report the information to FinCEN, and update the information within a specified timeframe if there are any changes. Remember: Texas is a community property state and a spouse is likely a beneficial owner.

Penalties for Non-Compliance:

Failure to comply with the CTA can result in significant penalties, including fines ($500 per day, up to $10,000) and potential criminal charges. It is crucial for businesses to understand their obligations and take the necessary steps to ensure compliance.

Practical Steps for Compliance:

To comply with the CTA, businesses should: 

 

 

• conduct a thorough review of their ownership structure;

 

 

• implement procedures to collect and verify beneficial ownership information;

 

 

• establish a system for reporting and updating the information to FinCEN; 

 

 

• seek legal advice to ensure compliance with the CTA and other relevant regulations; and,

 

 

• use https://boiefiling.fincen.gov (BOI E-FILING) to e-file all required information. 

 

 

Conclusion: The CTA represents a significant step towards greater corporate transparency and accountability. For businesses in Texas, understanding and complying with the CTA is essential to avoid penalties and contribute to a transparent business environment. If you have any questions or need assistance with compliance, please do not hesitate to contact Glavy Law by email, bud.glavy@glavylaw.com or by telephone, 210-880-1777.