Serving South Florida Since 1974

What violations of the CTA could cost successful businesses

On Behalf of | Feb 27, 2024 | Business Law

Business laws change frequently, and those running companies must ensure they remain compliant with all applicable statutes. As of the first of the year in 2024, there is yet another law that governs businesses without a direct and clear ownership structure.

Corporations, limited partnerships, limited liability companies (LLCs) and similar organizations must now file a report to remain compliant with the federal Corporate Transparency Act (CTA). Companies need to identify the parties who have a significant ownership interest in the organization and also the parties who helped create or form the business by filing paperwork with the state.

Existing companies have a year from January 1st to file the necessary report with the Financial Crimes Enforcement Network (FinCEN). New startups generally need to file the report within their first month of existence. The law also requires filing updates when circumstances at a company change. What happens when a business does not comply with the CTA?

There could be civil or criminal consequences

In some cases, violations of the CTA could lead primarily to civil penalties with financial consequences. In more extreme cases involving intentional misconduct and possibly secondary criminal activity, violations of the CTA could warrant criminal prosecution.

FinCEN can assess fines of up to $500 per day per violation. Each violation could result in up to $10,000 in fines. The failure to file an initial report by the new deadlines established by law could lead to a $10,000 fine on its own. Penalties could then accrue in addition to that fine. In cases involving a seemingly criminal violation, the penalties could include a personal fine of $10,000 and up to two years imprisonment.

In other words, seemingly minor issues, like forgetting to file a report with FinCEN after a new investor buys out a prior one could lead to massive financial setbacks for the company and the possibility of criminal penalties for specific parties involved in operating the business.

It is, therefore, incumbent upon those running a business and those with an ownership interest in a company to ensure proper compliance with the CTA and similar corporate regulations. Learning more about the laws that govern businesses and the penalties for violating them by seeking informed legal guidance may help executives and business owners avoid preventable legal challenges accordingly.