The Corporate Transparency Act (CTA), effective January 1, 2024, introduces significant beneficial ownership information (BOI) reporting requirements for many U.S. and foreign entities operating in the United States. Its primary goal is to enhance transparency in business ownership to combat illicit financial activities such as money laundering, terrorism financing, and tax fraud.
What is the Corporate Transparency Act (CTA)?
The CTA mandates certain companies, known as "reporting companies," to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. This federal regulation aims to create a comprehensive database of beneficial ownership information, which will be accessible to law enforcement agencies for national security, intelligence, and law enforcement purposes.
Who Needs to Report? (Reporting Companies)
Generally, a "reporting company" includes:
- Domestic Reporting Companies: Any corporation, limited liability company (LLC), or other entity created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.
- Foreign Reporting Companies: Any entity formed under the law of a foreign country that is registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.
There are 23 specific exemptions from the reporting requirements. These typically include:
- Large Operating Companies: Companies with more than 20 full-time employees, more than $5 million in gross receipts or sales, and an operating presence at a physical office in the U.S.
- Highly Regulated Entities: Such as banks, credit unions, insurance companies, public utilities, and securities brokers or dealers.
- Tax-Exempt Entities: Certain entities defined under section 501(c) of the Internal Revenue Code.
- Inactive Entities: Companies that existed before January 1, 2020, have no assets, are not engaged in active business, and meet other specific criteria.
It is crucial for businesses to determine if they qualify as a reporting company and if any exemptions apply.
What Information Must Be Reported?
Reporting companies must provide detailed information about the entity itself, its beneficial owners, and in some cases, its company applicants.
1. Reporting Company Information
Reporting companies subject to the CTA are required to provide the following information regarding the entity:
| Category | Required Information |
|---|---|
| Legal Name | Full legal name |
| Trade Names | Trade names or "doing business as" (d/b/a) names |
| Address | Current address of the entity's principal place of business in the U.S. |
| Jurisdiction | Jurisdiction of formation or registration |
| Taxpayer ID | Federal taxpayer identification number (TIN) |
2. Beneficial Owner Information
A "beneficial owner" is defined as any individual who, directly or indirectly, either:
- Exercises substantial control over a reporting company; OR
- Owns or controls 25% or more of the ownership interests of a reporting company.
For each beneficial owner, the following information must be reported:
- Full legal name
- Date of birth
- Current residential street address
- A unique identifying number from an acceptable identification document (e.g., U.S. passport, state driver's license, state identification card).
- An image of the identification document from which the unique identifying number was obtained.
3. Company Applicant Information
This requirement applies only to reporting companies formed or registered on or after January 1, 2024. A "company applicant" is the individual who:
- Directly files the document that creates or registers the reporting company.
- Is primarily responsible for directing or controlling the filing of the creation or registration document by another.
For up to two company applicants, the following information must be reported:
- Full legal name
- Date of birth
- Current residential street address (if the filing is not in the course of business) OR business address (if filing in the course of business)
- A unique identifying number from an acceptable identification document (e.g., U.S. passport, state driver's license, state identification card).
- An image of the identification document.
When Are Reports Due? (Reporting Deadlines)
The deadlines for filing initial BOI reports depend on when the reporting company was created or registered:
- Existing Companies (Formed/Registered BEFORE January 1, 2024): Must file their initial report by January 1, 2025.
- New Companies (Formed/Registered DURING 2024): Must file their initial report within 90 calendar days of the date they receive actual or public notice that their company's creation or registration is effective.
- New Companies (Formed/Registered ON OR AFTER January 1, 2025): Must file their initial report within 30 calendar days of the date they receive actual or public notice that their company's creation or registration is effective.
- Updates and Corrections: Any changes to previously reported information or discovery of inaccuracies must be reported within 30 calendar days of the change or discovery.
Penalties for Non-Compliance
Failure to comply with CTA reporting requirements can result in significant penalties, including:
- Civil Penalties: Up to $500 for each day that the violation continues.
- Criminal Penalties: Fines of up to $10,000 and/or imprisonment for up to two years for willfully failing to report, providing false information, or unauthorized disclosure of BOI.
For more detailed information, reporting companies can refer to the official FinCEN website.
