ALERT: The Corporate Transparency Act (CTA): What Your Business Needs to Know for 2024

1. What is the CTA?

The Corporate Transparency Act (CTA) is a United States federal law that requires many privately held corporations, LLCs, and other entities to report their beneficial ownership information to The Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. The purpose of the CTA is to deter illicit activity such as money laundering, tax fraud, trafficking, and terrorism financing. Information collected by FinCEN pursuant to the CTA will not be publicly available but may be used by government authorities for national security, intelligence and law enforcement activities and to assist banks and other financial institutions with their know-your-customer and anti-money laundering activities. Failure to comply with the CTA could result in substantial civil and criminal penalties.

2. What entities must file a report?

• Reporting Companies:
  • Each Reporting Company must report its beneficial ownership information to FinCEN pursuant to the CTA, and will be required to update its beneficial ownership information if and when there are changes. There is no recurring reporting obligation absent changes or corrections to beneficial ownership information.
  • A Reporting Company is:
    • Any corporation, limited liability company, or other entity that was formed by filing a document with the secretary of state (or similar) of any State or Indian Tribe, or
    • Any foreign corporation, limited liability company, or other entity that has registered to do business in the United States by filing a document with the secretary of state (or similar) of any State or Indian Tribe.

• Exempt Entities:
  • Even if an entity fits the above criteria, it may be exempt from CTA reporting. The CTA provides for 23 exemptions to its reporting requirements, including for banks, credit unions, registered broker-dealers, tax-exempt entities, subsidiaries of certain exempt entities, and certain inactive entities.
  • Large Operating Companies are also exempt. To qualify for this exemption, an entity must employ more than 20 full-time employees in the United States, file United States federal income tax returns showing more than $5 million in gross receipts or sales, and have a physical office in the United States.

3. What Information Must be Reported?

• Each Reporting Company must provide (i) its legal name, (ii) any trade names or doing business as names, (iii) its address, (iv) its jurisdiction of formation, and (v) its Taxpayer Identification Number.
• Each beneficial owner (generally any owner of 25% or more of the ownership interests and anyone who has “substantial control” as defined in the CTA) must provide (i) their name, (ii) date of birth, (iii) residential address, and (iv) an identifying number from an acceptable form of ID (e.g., a passport or driver’s license) and the name of the issuing jurisdiction.
• United States Reporting Companies formed on or after January 1, 2024 and foreign Reporting Companies registered to do business in the United States on or after January 1, 2024 will also be required to provide similar information on certain individuals who are involved in the entity’s formation (referred to as “company applicants”).

4. When are reports due and how do you submit them?

• FinCEN will begin accepting beneficial ownership information reports on January 1, 2024. The due date for these reports depends on when an entity was formed.
  • Entities formed prior to January 1, 2024: Reports are due by January 1, 2025.
  • Entities formed from January 1, 2024 to December 31, 2024: Reports are due within 90 calendar days of formation.
  • Entities formed on or after January 1, 2025: Reports are due within 30 calendar days of formation.
• Updates to reports are due within 30 days following a change in information previously reported.

Reports must be submitted via an online portal on FinCEN’s website, which is not yet available. Reporting requirements begin January 1, 2024. Please see FinCEN’s Frequently Asked Questions and Small Entity Compliance Guide for more information. We are poised to assist with your reporting compliance, to determine if a statutory exemption is available for your business and to respond to other CTA-related questions. Please contact your Dilworth attorney or Graham R. Laub, Rosemary J. Loverdi, Roger F. Wood, or Andrea N. Metz of Dilworth Paxson LLP’s Corporate and Business practice.