Corporate Transparency Act (CTA) Requirements

Aiming to combat and prevent money laundering, terrorist financing, corruption, tax fraud, and other illicit activities, the Corporate Transparency Act (CTA) requires filing beneficial ownership reports with the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury. 

The CTA doesn’t impact every entity. However, there are significant consequences for not meeting the CTA requirements: Civil fines of up to $500 per day for continuous breaches, alongside potential criminal penalties reaching $10,000 in fines and/or imprisonment for a maximum of two years.  

You need to know if you are impacted and what you need to do if you are.  

Who is impacted by the Corporate Transparency Act?

Under the CTA, certain United States and foreign entities operating in the United States must submit a Beneficial Ownership Information (BOI) Report to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The reporting requirements apply broadly and impact small companies, many of whom have never made federal filings other than those with the Internal Revenue Service.  (Some states are in the process of challenging the CTA legislation. At the time of this article’s posting,  there have been no changes to the CTA as a result of these challenges.)

The CTA will impact entities across the U.S. and the individuals who own or control those entities.  

• Each corporation, LLC, and other legal entity established in the U.S. must ascertain whether it qualifies as a Reporting Company under the legislation or qualifies for an exemption. 
• Every entity classified as a Reporting Company must determine and disclose its Beneficial Owners and Company Applicant(s). 
• Trustees will be considered Beneficial Owners of a Reporting Company if the trust holds 25% or more of the Reporting Company. 
• Attorneys and other service providers involved in establishing new entities after January 1, 2024, might be designated as company applicants. 

Why was the Corporate Transparency Act passed?

Congress contends that individuals engaging in fraudulent activities often utilize corporate structures such as shell and front companies to conceal their identities and facilitate the movement of funds through the financial system.  

What do you have to do to comply with the CTA?

Business entities formed before January 1, 2024, have until January 1, 2025, to comply with the CTA’s reporting requirements. 

Any domestic reporting company established in 2024 must submit a BOI report within 90 calendar days of either receiving official notification of its formation becoming effective or the secretary of state or equivalent office issuing public notice of its formation, whichever happens first. Reporting companies formed or registered on or after January 1, 2025, will have 30 calendar days to file their initial BOI reports after receiving actual or public notice that the entity has been formed or registered, whichever happens first.  

Any changes or updates to a previously filed BOI report must be submitted within 30 days of those changes. 

Key terms of the CTA

A reporting company encompasses nearly all entities established in the United States. However, the legislation also establishes various exemptions that exclude certain entity types, including: 

• Public companies 
• Larger companies (with a physical presence in the U.S., employing over 20 individuals, and with gross receipts/sales exceeding $5 million) 
• Companies in regulated sectors (such as financial services, including certain investment firms, fund advisors, and pooled investment vehicles, as well as insurance companies) 
• Tax-exempt entities 
• Subsidiaries (such as portfolio companies) controlled or wholly owned by an exempt entity may also be exempt (depending on the specific exemption utilized) 

Entities falling within these exemptions are not obligated to submit CTA reports. 

A beneficial owner is any individual who either (i) holds 25 percent or more ownership of a Reporting Company or (ii) exercises “substantial control” over a Reporting Company. Many senior executives may be classified as Beneficial Owners under the legislation due to their significant influence over a Reporting Company. “Ownership interests” include various types of interests, such as equity, capital interests, profits interests, and convertible instruments. 

A company applicant is an individual who directly submits an entity’s formation documents to a relevant state or tribal authority or is primarily responsible for overseeing or directing the filing process. 

Domestic reporting companies are corporations, limited liability companies, and any other entities created by filing a document with a secretary of state or any similar office in the United States.  

Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country registered to do business in the United States by filing a document with a secretary of state or any similar office. 

Brighton Jones clients with questions and or who think they might be required to file under the new CTA legislation, please contact your service team.