To avoid civil and criminal penalties for noncompliance, over one hundred thousand entities have filed beneficial ownership information reports (“BOIR”) to the Financial Crimes Enforcement Network (“FinCEN”) as of April 1, 2024. Although this filing total is significant, many entities have not yet filed and are hearing about the CTA for the first time.

What is the Corporate Transparency Act?

Effective as of January 1, 2024, the CTA requires “beneficial owners” of “reporting companies” to disclose personal information to FinCEN. These disclosures are meant to combat financial crimes, money laundering, and terrorism financing by enhancing transparency in corporate ownership structures.

For reporting companies formed prior to January 1, 2024, the reporting company has until the end of the year to file its BOIR. For reporting companies formed on or after January 1, 2024, the reporting company has 90 days from its formation to file its BOIR. Starting in 2025, this 90-day filing window will be reduced to 30 days.

Is my entity a “Reporting Company”?

As a general rule, if your entity was formed by filing a document with a government office, it is a “reporting company” and must comply with the CTA requirements. There are, however, exemptions to this general rule. For instance, banks, credit unions, insurance companies, and certain types of tax-exempt entities likely qualify for an exemption. Additionally, a large operating company is exempt if the entity has over 20 full-time employees and over $5 million in gross receipts or sales.

There are 23 total exemptions for which a reporting company may qualify. If no exemption applies, then your entity must report personal information about each of the entity’s beneficial owners, as defined by the CTA.

What is a Beneficial Ownership Information Report and who are beneficial owners?

A BOIR discloses personal information about the “beneficial owners” of your entity. This defined term is slightly misleading in that a beneficial owner does not need to be an owner of the entity. Instead, a “beneficial owner” is any individual who, directly or indirectly, (1) exercises substantial control over a reporting company or (2) owns or controls at least 25 percent of the ownership interests of the reporting company. Despite the clarity of the second prong, analyzing “substantial control” under the first prong can be challenging given the novelty of the CTA. This, however, may become clearer as more extensive guidance emerges.

What personal information must I disclose?

A beneficial owner is required to disclose several pieces of personal information to FinCEN. Specifically, the required disclosures include the beneficial owner’s first and last name, residential address, and a photo of either their driver’s license or U.S. passport.

In addition to the beneficial owner’s disclosures, the reporting company must disclose information such as its legal name, tax identification number, jurisdiction of formation, and principal address.

Is the Corporate Transparency Act here to stay?

The constitutionality of the CTA has been questioned in the legal field. Nevertheless, as of this writing, the CTA remains a binding law with which reporting companies must comply.

We will continue to monitor filings and rulings with respect to the constitutionality of the CTA and provide updates as they become available.

What resources are there to assist me with compliance?

If you have any questions related to the CTA, please contact Ruder Ware at cta@ruderware.com. Our team of experts are happy to assist you with analyzing your entity’s CTA requirements.

Contact us at cta@ruderware.com for assistance.