Introduction
The January 1, 2021, implementation of the federal Corporate Transparency Act (CTA), introduced significant requirements that presently affect many business entities and their owners, among other individuals. The CTA has clear and actionable obligations for companies and owners as well as company applicants to be complaint with its requirements.
What is the CTA:
The Corporate Transparency Act addresses business ownership transparency. Recently, state and federal authorities have struggled to trace the ownership and control of business entities, particularly to combat money crimes including money laundering and tax evasion. The CTA aims to trace ownership and control of certain legal entities by requiring certain businesses to disclose their beneficial ownership information. This data is collected and managed by the Financial Crimes Enforcement Network (FinCEN) within the U.S. Treasury Department.
Who is impacted by the CTA:
Entities – “Reporting Companies”
The CTA's reporting requirements classify many domestic and foreign entities as reporting companies. A domestic reporting company is a corporation, limited liability company, partnership or any entity created by the filing of a document with a secretary of state or similar office under state law or Indian tribe. A foreign reporting company is a corporation, LLC, or other 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-type entities that are exempt from the CTA’s reporting requirements, covering publicly traded companies, many nonprofits, and certain large operating companies.
Individuals – “Beneficial Owners”
Under the CTA, individuals who own at least 25% of the ownership interests of a reporting company or directly or indirectly exercise substantial control over a reporting company are beneficial owners. There are five types of individuals exempt from the definition of beneficial owner.
Who has substantial control over a reporting company:
Who is a beneficial owner of a reporting company:
Company Applicants
A reporting company may also be required to report a company applicant. A company applicant is an individual, not a legal entity, who directly files or is primarily responsible for the filing of the document that creates or registers the company. If a reporting company is required to report company applicants, it must identify at least one and at most two company applicants. There are different categories of company applicants.
Is your company required to report its company applicants?
What reporting company has to report a company applicant:
Compliance Deadlines
The CTA sets out specific deadlines for filing initial reports based on when a reporting company was formed:
For entities existing before January 1, 2024: Reports are due by January 1, 2025.
For entities formed between January 1, 2024, and December 31, 2024: Reports are due within 90 days of formation or registration.
For entities formed on or after January 1, 2025: Reports are due within 30 days of formation.
Any changes in beneficial ownership must be reported within 30 days, such as those resulting from equity sales or personal changes like divorce settlements.
The Corporate Transparency Act has wide implications for a broad range of entities and individuals. Non-compliance can lead to severe consequences, including civil penalties of $500 per day, capped at $10,000, and criminal penalties, including up to two years in prison for willfully providing false information or failing to meet reporting obligations. Companies and individuals may wish to seek legal guidance to ensure compliance. Please contact Katie Kamenetsky for further information.
Disclaimer — This content is for general information only. The information contained herein is not legal advice for any specific matter, nor does it create an attorney-client relationship. Laws vary from one state to another. For legal advice, consult an attorney.
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