What Are the Corporate Transparency Act Penalties?

The Corporate Transparency Act (CTA) introduces reporting obligations aimed at increasing transparency in corporate ownership to prevent illicit financial activities. Enacted in 2021 and effective from January 1, 2024, the legislation is designed to uncover the true owners of companies operating within the United States. This law addresses the use of anonymous shell companies for activities like money laundering and tax fraud. A core component of this regulation is the implementation of substantial penalties for companies that fail to adhere to its reporting mandates.

Understanding the Reporting Requirements

The Corporate Transparency Act requires certain entities, known as “reporting companies,” to submit information about their owners to the Financial Crimes Enforcement Network (FinCEN). A reporting company generally includes corporations, limited liability companies (LLCs), and other similar entities created by filing a document with a secretary of state. The CTA does provide 23 specific exemptions for certain types of entities, such as publicly traded companies and large operating companies that have more than 20 full-time employees and over $5 million in gross receipts.

A central element of the reporting rules is identifying the “beneficial owners” of the company. A beneficial owner is any individual who, directly or indirectly, exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests. The “substantial control” test is broad and can include senior officers, individuals with authority to appoint or remove senior officers, and those who direct or have a substantial influence over important decisions made by the company.

The CTA also mandates the identification of the “company applicant.” This includes the individual who directly files the document that creates the entity. For entities created on or after January 1, 2024, it also includes the person who is primarily responsible for directing or controlling the filing action.

Reporting companies must provide specific details for the business, its beneficial owners, and its company applicants. For each beneficial owner and company applicant, the report must include their full legal name, date of birth, and residential address. It also requires a unique identifying number from an acceptable identification document, such as a U.S. passport or state driver’s license, along with an image of that document.

For companies created before January 1, 2025, the deadline to file the initial report is in early 2025. For companies created on or after January 1, 2025, the report is due within 30 days of their creation or registration.

Civil and Criminal Penalties for Non-Compliance

Failure to comply with the Corporate Transparency Act’s reporting mandates carries severe consequences, encompassing both civil and criminal penalties. The regulations are designed to ensure that businesses take their reporting obligations seriously.

The civil penalty for a reporting violation is up to $606 for each day that the violation continues. This daily fine can accumulate rapidly, placing a substantial financial burden on a non-compliant company.

Beyond monetary fines, the CTA also imposes stringent criminal penalties for willful non-compliance. An individual who willfully violates the reporting rules can face a fine of up to $10,000 and imprisonment for up to two years.

It is important to understand that civil and criminal penalties can be applied together. A non-compliant party could face both the daily accumulation of fines and the prospect of a substantial one-time fine and imprisonment.

Actions That Trigger Penalties

Penalties under the Corporate Transparency Act are not triggered by accidental errors but are reserved for willful violations. The legal standard of “willfulness” is a key element, meaning that the individual must have acted with the knowledge that their conduct was unlawful or with reckless disregard for the law. This distinction separates inadvertent mistakes from deliberate attempts to evade reporting duties.

There are three primary actions that can trigger these penalties:

• Willfully failing to file the initial Beneficial Ownership Information (BOI) report by the specified deadline.
• Willfully providing false or fraudulent information on the BOI report, which includes submitting incorrect names, addresses, or identification numbers with the intent to mislead FinCEN.
• Willfully failing to update or correct a previously filed report. Reporting companies have an ongoing obligation to ensure their information on file with FinCEN remains current and must file an updated report within 30 days of a change.

Individual Liability for Violations

A significant aspect of the Corporate Transparency Act’s enforcement framework is that liability is not confined to the reporting company as an entity. The law extends personal liability to the individuals who are responsible for the company’s failure to comply.

Responsibility for a violation can fall upon any person who either causes the failure to report or is a senior officer of the company at the time of the failure. This means that executives and other high-level managers have a direct, personal stake in ensuring their company’s compliance.

Furthermore, any individual who willfully provides false information, or willfully causes the company to submit a report containing false information, can be held personally liable. This includes not only the beneficial owners themselves but also any person who assists in preparing and filing the report.

This personal liability means that individuals can be subject to the same civil and criminal penalties as the company. This makes CTA compliance a matter of personal risk management for anyone involved in the governance or administration of a reporting company.

The Safe Harbor Provision for Corrections

The Corporate Transparency Act includes a safe harbor provision that allows for the correction of inaccurate information without penalty. This mechanism acknowledges that mistakes can happen and provides a path for companies and individuals to rectify errors.

The safe harbor allows a person to correct an inaccurate BOI report without penalty, provided a corrected report is filed within 90 days of the date the original, inaccurate report was filed.

The provision is specifically designed to protect those who make inadvertent errors, not those who intentionally file false information. The safe harbor will not apply if the original inaccurate report was submitted with fraudulent intent or for the purpose of engaging in unlawful activity. If an individual or company discovers a mistake in their BOI report, they can avoid liability by voluntarily and quickly submitting a corrected report to FinCEN.