Boards & Governance
Tolu Ajimoko Image
Tolu Ajimoko
Vice President, Product Management

Why the Corporate Transparency Act is a call to action for centralized entity management

March 7, 2024
0 min read
colleagues discussing entity data and compliance with the Corporate Transparency Act

The Corporate Transparency Act (CTA) is the latest in a growing roster of acronyms raising the bar for company registrations and reporting.

It’s also a call to action for businesses of all sizes: The time is now to take entity management to the next level—or at least migrate it away from disconnected spreadsheets and paper processes.

Here’s what legal teams need to know about the CTA, and how the right technology can help.

BOI reporting brings big complications

As criminals increasingly use U.S. business registrations to commit tax fraud, launder money, or finance terrorism and other illicit activities, the Department of Treasury is taking action.

As of January 1, 2024, the CTA requires any businesses created by a filing with a secretary of state or similar office to disclose information about company ownership to the Treasury’s Financial Crimes Enforcement Network (FinCEN).

On March 1, the CTA was ruled unconstitutional by the U.S. District Court for the Northern District of Alabama. Although FinCEN is not currently enforcing the CTA against the plaintiffs, it remains in effect for all other reporting companies, making compliance a top priority.

If you’re thinking this will be a straightforward task that can be handled with the same old manual systems, it’s time to think again.

Clearly, millions of businesses in the U.S. fall within CTA oversight. Less obvious is the fact that many foreign-based businesses will too, if they have qualifying operational locations in the United States. Laws like this highlight the need for a global entity management system that can track compliance across global jurisdictions.

If your business does need to file a Beneficial Ownership Information (BOI) Report, there are many steps ahead. First, you’ll need to identify exactly who qualifies as an owner. Some criteria, like ownership of 25% or more of the company’s shares, are relatively straightforward. Others take some expert evaluation and deliberation. For example, does an individual have a major influence on decisions, operations or equity?

Then there’s the data you need to include in your BOI. Names are just the beginning of what FinCEN wants to know about your company’s owners. You may need to submit addresses, birthdays, and license or passport numbers as well.

Your BOI will also require official company information: the business’ legal name, current U.S. address or operational U.S. location, taxpayer ID number, and jurisdiction where the business was formed and registered.

Scattered spreadsheets aren’t up to the challenge

Does your legal team have all of these details at their fingertips? Are you confident that the information they unearth—often scattered across spreadsheets, email chains and paper files—is accurate and up to date?

The up-to-date part is particularly important. Did one of your company owners recently get married or divorced? That legal name change needs to be reflected in your BOI. Same if an owner divested her shares or delegated authority to another party.

For a small business with lean operations, it’s a lot to keep track of. Time is of the essence for filing a report or update—sometimes the timeframe is as short as 30 days. And companies risk civil and criminal penalties for noncompliance.

It’s clear that CTA reporting, and reporting for similar regulations that follow, is not an area where you can afford to cut corners.

Time to up your entity management game

Indeed, with economic crime and regulatory enforcement on the rise, the CTA is just one in a growing list of legal mandates bringing entity management to the fore. So, it’s time to bring all of these records and reporting activities together with a digital solution like Diligent Entities.

With all your data in one place, your team will work more efficiently and get deeper visibility across your entities, reducing the risk of errors, missed deadlines, noncompliance and fines. Automation, cross-functional collaboration capabilities, group structure visualizations, single-click chart creation, and seamless integration with systems like Workday, Oracle and Salesforce make it easy to track your filings and help ensure that no critical details or deadlines are overlooked.

Meanwhile, strong data protection measures (including role-based access and security certificates) safeguard sensitive data for better peace of mind over the information you report.

In short, a centralized entity management solution brings efficiency, accuracy and integrity to business ownership and registration reporting, so you can ensure compliance with regulations like the CTA while saving time and avoiding costly risks.

Diligent Entities makes CTA compliance easier. Schedule a demo today to see it in action.


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