As of January 1, 2024, the federal Corporate Transparency Act (CTA) has been in effect, marking a significant change in how business entities in the United States manage their reporting obligations. Passed by Congress on January 1, 2021, the CTA introduces a beneficial ownership database administered by the Financial Crimes Enforcement Network (FinCEN)—a bureau of the U.S. Department of the Treasury. This controversial law is estimated to affect approximately 32.6 million businesses in 2024 alone, with millions more impacted each year thereafter. This article discusses the intricacies of the CTA and its significant implications for North Dakota businesses and their owners.
According to its supporters, the CTA primarily aims to assist law enforcement in unveiling the identities of individuals who misuse business entities for illicit purposes. However, despite the relatively small number of entities involved in such unlawful activities, the Act’s reach is extensive. As a result, a vast majority of businesses in North Dakota and throughout the United States, including those not involved in any illegal activities, will find themselves subject to the new regulations under the CTA.
The CTA mandates that all reporting companies submit a Beneficial Ownership Information (BOI) report, unless they are eligible for an exemption. A “reporting company” includes corporations, limited liability companies, or similar entities formed through a filing with a secretary of state or an equivalent office within a tribal territory. The CTA applies to both domestic and foreign entities; however, it excludes certain types of entities. These exemptions include, but are not limited to, entities regulated by the Securities and Exchange Commission, federally tax-exempt nonprofits, and governmental entities. A business entity unsure about its exemption status should seek professional guidance to determine if any of the CTA’s exemptions are applicable.
Every BOI report to FinCEN requires the disclosure of Personal Identifiable Information (PII) for each beneficial owner of the company. Under the CTA, a “beneficial owner” is defined as an individual who, directly or indirectly, holds at least 25% of the ownership interests or exercises substantial control over the reporting company. This requirement applies regardless of whether these individuals are listed in the company’s formation documents and encompasses all ownership or control structures. The definition of “substantial control” is broad, including senior officers and anyone with significant influence over key decisions. The PII required for the BOI report includes the beneficial owner’s name, birthdate, residential address, and a copy of an identification document such as a state driver’s license, U.S. passport, or other state or federal-issued ID. In addition to providing information about its beneficial owners, the reporting company must also furnish detailed information about itself, including its full legal name, any trade names it operates under, addresses, and its tax identification number. FinCEN is responsible for the management and secure storage of all collected information under the CTA.
Businesses in existence before January 1, 2024, are required to submit an initial BOI report before January 1, 2025. For businesses established between January 1, 2024, and January 1, 2025, the initial report must be filed within 90 days following the business’s formation. Businesses formed on or after January 1, 2025, must file their initial BOI report within 30 days after their formation. Importantly, any changes to the reported information require an amended report that must be made within 30 days of the change. Additionally, if inaccuracies are identified in a report, the reporting company must correct them in an amended report within 30 days of discovering them. Failure to comply with these requirements could lead to penalties for non-compliance.
Ensuring compliance with the CTA is very important, as failure to comply with the CTA’s stipulations may result in severe criminal penalties, including fines of up to $10,000 per infraction and/or imprisonment for a maximum of two years. Moreover, in addition to criminal penalties, non-compliance can result in substantial civil penalties. To avoid these repercussions, businesses in North Dakota should take proactive steps to ensure compliance with the CTA. This entails meticulous maintenance of beneficial ownership records and their timely filing and update following any alterations.
In conclusion, the CTA ushers in a new era of transparency in the corporate sector, which will undoubtedly have a profound impact on businesses in North Dakota and across the United States. More precisely, the CTA marks a pivotal change in the regulation of business entities and their operations, transitioning from traditional state-level oversight to a more encompassing federal purview. With the CTA now in effect, businesses in North Dakota must promptly adapt to these changes.
Given the CTA’s extensive scope and mandates, businesses should, if necessary, seek specialized legal advice, which may be crucial to navigating the CTA’s intricacies, ensuring compliance, and avoiding potential penalties.
At DeMakis Law, PLLC, we have been tracking the developments of the CTA, equipping ourselves with a comprehensive understanding of its requirements and implications. We invite you to reach out to us for any inquiries or assistance with the CTA, including understanding and fulfilling any reporting obligations. However, please note, that DeMakis Law, PLLC will not act on your behalf regarding the CTA without a specific written engagement/agreement.
Disclaimer—The information provided in this article is for informational purposes only and should not be interpreted as legal advice. No attorney-client relationship is formed by reading this article. DeMakis Law, PLLC will not undertake any actions on your behalf regarding the CTA without a specific written engagement for this purpose. The content of this article is intended to provide a general understanding of the law. It is not intended to be comprehensive legal advice or a substitute for professional counsel. Please consult your legal advisor for further information regarding the application of the CTA to any specific situation.
