Corporate Transparency Act

What is the Corporate Transparency Act (the "CTA")?

Who is Required to Report?

Under the CTA, reporting companies must file information on beneficial owners and company applicants.

Reporting Company

A "reporting company" is either a domestic or foreign privately held company. A domestic reporting company is an entity that is created by the filing of a document with a secretary of state or similar office under the law of a state. A foreign reporting company is an entity formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a state². Publicly traded companies already have sufficient reporting requirements and are therefore not included under the CTA.

Beneficial Owner

A "beneficial owner" is an individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25% of the ownership interests of a reporting company. Substantial control can be exercised by an individual serving as a senior officer, who has authority to appoint or remove a senior officer, or who can direct or make substantial decisions over important matters.³

Beneficial ownership includes direct and indirect interests and includes joint ownership or any undivided interests. If an entity is owned by a trust, the beneficial owner could be the Grantor or Settlor of the trust who has a right to revoke the trust or withdraw assets, the Trustee or person holding authority to dispose of trust assets, a sole beneficiary who is the recipient of income and principal, or a beneficiary who has the right to demand distribution or withdraw substantially all assets from the trust.⁴

There are exclusions to the definition of beneficial owner, such as minor children, non-senior employees, and contingent beneficiaries of a trust. A full list of exclusions is included in 31 USC §5336(a)(3)(B).

Company Applicant

A company applicant is any individual who files an application to form or register an entity under the laws of a state, including the person who directed the filing. For example, if a family member files the document on behalf of a relative, both the family member and the relative are considered company applicants⁵.

It's important to understand whether the CTA applies to you or not.  If you're not sure, consult with a professional advisor for more details.  

What are the Reporting Requirement?

Reporting companies must submit the following information to FinCEN⁶: 1. 

1. Identifying information on the reporting company

a. Legal name, trade name and "DBA"

b.  Address for principal place of business

c.   Jurisdiction in which it was formed or first registered

d.  Tax ID number

2. Identifying information on the beneficial owners and company applicants

a.   Legal name

b.  Date of birth

c.   Current Address

e. Image of document with ID

3.  FinCEN Identifier⁷

a.   Unique identification number, useful for repeat filers

The information reported to FinCEN through these reports can only be disclosed by FinCEN to a government agency, law enforcement, or financial institutions for compliance with anti-money laundering or other diligence obligations.⁸ Freedom of Information Act (FOIA) requests do not cover the CTA reports, which means the reports will not be available to the public.

When are Reports Due?

For reporting companies already in existence prior to January 1, 2024, the initial report is due one year after the CTA is effective (i.e., by January 1, 2025). For reporting companies created or registered on or after January 1, 2024, the initial report is due 30 calendar days after the entity is created or registered.⁹

Following the initial report, if there are any corrections or changes of ownership, a new report must be filed within 30 days of the correction or change. Otherwise, there is no ongoing filing requirement. Some changes that would require a new filing include a change of address, change in senior management, or when an owner has died and the business interests pass on to new beneficiaries.

At this time, no form has been issued by FinCEN, although FinCEN has said that it will begin accepting reports electronically beginning January 1, 2024 .

What are the Potential Penalties?

Failing to report the information required by the CTA can result in stiff penalties. These penalties include civil penalties of up to

$500 per day as the violation continues, and they also include criminal penalties in the form of fines up to $10,000, imprisonment of up to two years, or both.

Failure to comply with the CTA can result in stiff penalties.

Steps to Take Now

Although there are more details to come, such as how to file the report, it is important to be aware of the new reporting obligations. To simplify the process and protect your business from penalties, make sure your company will be ready to comply beginning in 2024.  If you're a beneficial owner, you may also wish to discuss the CTA requirements with your attorney or CPA to be sure you are ready to help fulfill these new obligations.