The Corporate Transparency Act (CTA) Deadline Approaching

February 26, 2024

What is the Corporate Transparency Act?

In 2021, Congress passed the Corporate Transparency Act (“CTA”), as part of the National Defense Authorization Act of 2021, with the stated goals of increasing the transparency of legal entities and detecting and combatting domestic and international uses of business entities to illicitly conceal, transfer or use financial or other assets.

The CTA imposes significant new reporting burdens on both domestic and foreign entities which meet the definition of “Reporting Company” under the act. Reporting Companies must report information about the company, its “Beneficial Owners,” and its “Company Applicants” to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) through its Beneficial Ownership Information E-Filing (“BOI E-Filing”) System.

Does the CTA Apply to Your Company?

A domestic Reporting Company is a corporation (both C and S corporations), LLC, limited partnership or similar entity formed in the U.S. through a filing with a Secretary of State or any similar office under the law of a state or Indian tribe. A foreign Reporting Company is an entity formed under the laws of a foreign jurisdiction (outside of the U.S.) that is registered to do business in the U.S. through a filing with such agencies.

Certain types of entities are exempt from the requirements of the CTA. The exempt companies generally involve those that are already subject to substantial federal reporting requirements, including: public companies, banks, securities brokers and dealers, insurance companies, registered investment companies, accounting firms, tax exempt entities (including subsidiaries that are controlled or wholly owned, directly or indirectly), inactive businesses, and “Large Operating Companies”.

An entity is a Large Operating Company if it:

has more than 20 full-time employees;
operates in a physical, non-residence, and exclusive office space within the U.S.; AND
filed a federal income tax return for the previous year showing more than $5 million in gross receipt or sales from within the U.S.

What Information Does a Reporting Company Report?

First, Reporting Companies must report the following information about the company:

Full legal name, trade names, DBAs, whether or not formally registered;
Street address for company’s principal place of business;
State, tribal or foreign jurisdiction of formation (for a foreign Reporting Company, the state or tribal jurisdiction where it first registered in the U.S.); AND
Tax Identification Number (including EIN).

Second, Reporting Companies must report the following information about its Beneficial Owners AND Company Applicants:

Full legal name, date of birth, and residential address;
Unique identifying number from a U.S. passport, a state, local government or tribal ID document, state driver’s license or foreign government issued passport; AND
PDF (photocopy) of the document bearing the unique ID number.

Who Are the Beneficial Owners and Company applicants?

“Beneficial Owner” means any individual who, directly or indirectly:

Owns or controls 25% or more ownership interest, OR
Exercises “substantial control” over the Reporting Company.

“Ownership interest” means:

any capital or profit interest;
any instrument convertible, with or without consideration, into any share or instrument or any future on that instrument, whether or not characterized as debt;
any warrant or right to purchase, sell or subscribe to a share or other interest; or
any other instrument, contract, arrangement, understanding, relationship or mechanism used to establish ownership, OR
any of the above regardless of whether the interest is transferable, classified as stock or anything similar, or confers voting power or voting rights, any interest in a joint venture or any certificate of interest in a business trust.

“Substantial control” means:

senior officer including the president, CFO, general counsel, CEO, COO, or any other officer, regardless of title, performing a similar function;
any individual with authority over the appointment or removal of any senior officer or a majority of the board of directors or similar body;
any individual who directs, determines or has substantial influence over important decisions made by the Reporting Company; OR
any other form of substantial control over the Reporting Company.

Note that Beneficial Owner does NOT include:

minors (however, the information on the minor’s parent/guardian shall be reported instead until the minor reaches majority;
individuals acting as a nominee, intermediary, custodian or agent on behalf of another individual;
certain employees of a Reporting Company, acting solely in their roles as employees, who are not senior officers and whose substantial control or economic benefits derive solely from their employment status;
heirs; and
certain creditors of a Reporting Company.

For each Reporting Company, there are one or two Company Applicants:

the individual who directly files the document that creates, or first registers, the Reporting Company; and/or
the individual who is primarily responsible for directing or controlling the filing of the disclosure.

When is the Initial Disclosure Due?

Reporting Companies formed prior to January 1, 2024 must file an initial disclosure by January 1, 2025, but such disclosures do not need to include information regarding Company Applicants.

Reporting Companies formed on or after January 1, 2024, but before January 1, 2025, must file an initial disclosure within 90 days of formation of the entity (or the date the company registered to do business in a U.S. state, for foreign Reporting Companies).

Reporting Companies formed on or after January 1, 2025 must file an initial disclosure within 30 days of formation of the entity (or the date the company registered to do business in a U.S. state, for foreign Reporting Companies).

Also, an entity that becomes a Reporting Company because it has ceased to qualify for exempt status must file a disclosure within 30 days of ceasing its exempt status.

What Are the Ongoing Reporting Obligations?

Reporting Companies must file an updated report within 30 days of the date of any change to ANY of the information provided to FinCEN in the most recent disclosure. Reporting Companies must also file corrected reports within 30 days of becoming aware that any information reported is inaccurate. Similarly, a Reporting Company that has previously filed a disclosure but becomes exempt must file, within 30 days, an updated disclosure showing it is no longer a “Reporting Company.”

Accordingly, Reporting Companies should establish mechanisms by which they are notified by Beneficial Owners of any changes to their reported information and should implement indemnification and notification provisions related to the CTA into corporate governance documentation.

How Do You Report?

FinCEN has established the BOI E-Filing system which allows individuals and Reporting Companies to create profiles directly with FinCEN that captures the information required for disclosure reports. Profiles will be linked to a unique FinCEN identifier, which can be used in lieu of direct disclosure submissions allowing for more efficient, less costly reporting, enhanced privacy protection and reduced cybersecurity risk. The electronic reporting system is now up and running and accepting filings at https://boiefiling.fincen.gov.

What Are the Penalties for Failure to Comply?

Penalties for failure to timely file a required disclosure include a civil penalty of $500 per day for each day the violation continues. If a person willfully provides false beneficial ownership information, or willfully fails to report complete or updated beneficial ownership information, the person could be fined up to $10,000 and imprisoned for up to two years.

Additional Resources:

The Corporate Transparency Act (CTA)