Corporate Transparency Act

The Corporate Transparency Act (CTA) is meant to identify companies’ beneficial owners to help combat money laundering and shell companies. The rules are designed to encapsulate all business entities. Any entity formed before January 1, 2020 that is not actively engaged in business will need to submit a first report, but not any additional reports. These should be dissolved as to not incur any fees. Any business entity formed after that will need to submit a yearly report with information about beneficial ownership, including Full legal name; Date of birth; Current residential or business address; and Unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document), such as a driver’s license or passport.

This report must be submitted for any “beneficial owner.” A beneficial owner is any individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the reporting company. An individual exercises “substantial control” over a reporting company if such individual: Serves as a senior officer (except for corporate secretary or treasurer); has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body); directs, determines, or has substantial influence over important decisions made by the reporting company; or has any other form of substantial control over the reporting company, including as a trustee of a trust.

Once someone reports, however, they will receive a FinCEN ID number where they can easily change information or quickly submit reports. FinCEN has not yet created this portal or advised on exactly how it will work yet.

There are some exemptions to who needs to report. The most notable is a company that employs more than 20 people on a full-time basis in the United States, filed in the previous year Federal income tax returns demonstrating more than $5 million in gross receipts or sales, and has an operating presence at a physical office within the United States. Additionally, a subsidiary of this company can be exempt as long as it is wholly owned by the Large Operating Company. The subsidiary exemption does not extend to subsidiaries of money services business, pooled investment vehicles, or entities assisting a tax-exempt entity.

Additionally, the filers of entities need to report their information as well. The person who filed for the entity (i.e., a paralegal) and the authorizing attorney will need to report the same information as a beneficial owner. Only entities formed after January 1, 2024, will be required to report filer information. Any reporting company formed before January 1, 2024 is required to file the initial report before January 1, 2025. Any reporting company formed after January 1, 2024, will need to file within 30 days of its creation. After that initial report, a reporting company must file an additional report within 30 days of any change (ownership, address, name, etc.). If a reporting company fails to file a report, there is a penalty of $500 a day up to $10,000 and up to two years in jail.