The Corporate Transparency Act (the “CTA”) is a federal law with a filing requirement for almost every corporation, limited liability company, and limited partnership. The CTA requires that a Beneficial Ownership Information Report (the “Initial Report”) be filed by the Reporting Company with FinCEN, the Financial Crimes Enforcement Network, a bureau of the U.S. Treasury. Failure to comply with the CTA’s reporting requirements can result in significant civil and criminal penalties.

The requirement to file this Initial Report and any required Updated Report or Corrected Report comes from the CTA passed by bipartisan supermajorities in the House and the Senate in 2021. The purpose is to fight money laundering and terrorist financing, which are often run through small companies to mask the identities of the owners. Europe has had a similar measure in operation for many years.

Important Deadlines
The following due dates apply when filing the Initial Report of a corporation, limited liability company, or limited partnership: 

• If the entity is already in existence on December 31, 2023 – the Initial Report is due on January 1, 2025.
• If the entity is created from January 1, 2024 through December 31, 2024 – the Initial Report is due 90 days after it is created.
• If the entity is created on or after January 1, 2025 – the Initial Report is due 30 days after it is created.

When there is a change in any of the information previously reported for the Reporting Company or a Beneficial Owner, such as a change in address, an Updated Report is due 30 days after the change occurred, not 30 days after learning of the change.

When the Reporting Company becomes aware or has reason to know that an error was made on the Initial Report or an Updated Report, a Corrected Report is due 30 days after that.

What is a Reporting Company
The “Reporting Company” is the entity required to file the Initial Report, Updated Reports, and Corrected Reports with FinCEN. A Domestic Reporting Company is created by filing a document with the Secretary of State or a similar office. A Foreign Reporting Company is created in a foreign country and registered to do business in any State by filing a document with the Secretary of State or a similar office.

If there are parent and subsidiary entities, each one of those is a Reporting Company required to file separate Reports even though they may file consolidated income tax returns. There are no consolidated CTA Reports.

What is a Beneficial Owner
A “Beneficial Owner” is an individual who directly or indirectly owns or controls at least 25% of the Reporting Company or an individual who directly or indirectly exercises substantial control over the Reporting Company even if they do not have an ownership interest in the Company, such as a Trustee of a trust. Beneficial Owners are always natural persons. If another entity is an owner of the Reporting Company, it is necessary to determine who the Beneficial Owners are of that parent entity and determine which of them are Beneficial Owners of the Reporting Company.

What is a Company Applicant
A “Company Applicant” is an individual who filed the document with the Secretary of State that created the Reporting Company and an individual who was primarily responsible for directing or controlling the filing.

Beneficial Ownership Information Report
The Beneficial Ownership Information Report online form to be filed by the Reporting Company will be available on FinCEN’s website beginning on January 1, 2024 and must include the following information:

• For the Reporting Company – the full legal name; any trade name or doing business as name; the complete current street address of the principal place of business of the Company; the State of formation; and the Employer Identification Number.
• For each Beneficial Owner – the full legal name; date of birth; complete current residential street address; and a photocopy of a non-expired U.S. passport, a non-expired State driver's license, a non-expired State ID with a picture on it, or a non-expired foreign passport.
• For each Company Applicant – the same information as for a Beneficial Owner except if the Company Applicant formed the Reporting Company in the course of their business, then use the street address of the business. If the Reporting Company was already in existence on December 31, 2023, then the Company Applicant’s information is not included on the Initial Report.

Beneficial Owners and Company Applicants may instead provide their information directly to FinCEN and obtain a FinCEN Identifier number, which is then included on the Initial Report in place of their information. In that way those Beneficial Owners and Company Applicants do not have to provide a photocopy of their passport or driver’s license to the Reporting Company. The online application form for a FinCEN Identifier will be available on FinCEN’s website beginning on January 1, 2024.

For additional information from FinCEN, see their Small Entity Compliance Guide here.

Are There Any Exemptions? 
There are twenty-three listed exemptions for entities that are not required to file an Initial Report. Most exemptions are for entities already subject to disclosure rules like publicly traded companies, banks, and tax-exempt entities. 

One of those exemptions which may be useful is for large operating companies. To be a large operating company, the following three tests must all be met: (1) more than 20 full time employees; (2) operating presence at a physical office within the U.S.; and (3) filed a Federal income tax or information return in the U.S. for the previous year demonstrating more than $5,000,000 in gross receipts or sales, excluding gross receipts or sales from sources outside the U.S.

Penalties
There are civil and criminal penalties for willfully failing to timely file a complete and accurate Initial Report and any required Updated Report or Corrected Report. The civil penalty is not more than $500 per day. The criminal penalty is a fine of not more than $10,000, imprisonment for not more than 2 years, or both.

Because of the severity of these potential penalties, when it comes to deciding who is a Beneficial Owner, most Reporting Companies may decide that when in doubt they will include that person as a Beneficial Owner.”