Congress enacted the Corporate Transparency Act (“CTA”) on January 1, 2021. To implement the CTA, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) promulgated a final rule which went into effect on January 1, 2024.
The purpose of the CTA is to help protect our national security by giving the Treasury Department more information about corporate filings and the owners of companies who do business in the United States. The main goal of the CTA is to give the government better tools to battle money laundering, terrorism financing, and other illegal activities.
Although the goal of the CTA is laudatory, the obligations it imposes on businesses are significant and not widely understood. This may lead to significant non-compliance with CTA requirements. I have put together the following questions and answers to give the reader a general sense of what that CTA requires. For the purposes of this article, I am addressing the obligations of companies formed in the United States only.
What does the CTA require companies to do?
The CTA requires a Reporting Company to file information about itself, the Company Applicant, and its Beneficial Owners with the FinCEN. Filing can be done on-line at the following website link: https://boiefiling.fincen.gov.
What is a Reporting Company?
A Reporting Company includes corporations, LLCs or similar entities which were created by making a filing with a state Department of State or similar office. Similar entities include entities such as Limited Partnerships and Limited Liability Partnerships.
Are there any Exemptions?
Yes. In fact, there are twenty-three categories of exempt entities. They include publicly traded organizations, insurance companies, banks, credit unions, and large operating companies.
What is a Large Operating Company?
A Large Operating Company is a company that: (1) employs more than 20 employees on a full-time basis in the United States, (2) filed in the previous year federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales, and (3) has an operating presence at a physical office within the United States.
What does a Reporting Company have to disclose?
A Reporting Company must disclose its full legal name, any “doing business as” names, its business address, where it was formed, and its tax identification number.
Who are the Beneficial Owners?
A Beneficial Owner is someone who owns or controls at least 25% of the entity or exercises “substantial control” over the entity.
What is “substantial control”?
Someone is said to have “substantial control” over an entity if they: (1) serve as a senior officer, (2) have authority over the appointment or removal of any senior officer or a majority of the board of directors, or (3) can direct, determine, or have substantial influence over important decisions made by the reporting company.
What do the Beneficial Owners have to disclose?
Beneficial owners must disclose their full legal name, date of birth, current residential address, an identification number (i.e. a driver’s license number), and a copy of their identifying document (i.e. a copy of a driver’s license).
What is a Company Applicant?
A Company Applicant is a person who directly files a document creating a Reporting Company and any individual who is primarily responsible for directing such filing. There can be up to two Company Applicants.
What does a Company Applicant have to disclose?
Company Applicants need to disclose their full legal name, date of birth, current business address, an identification number (i.e. a driver’s license number), and a copy of their identifying document (i.e. a copy of a driver’s license). As an alternative to this information, Company Applicants and Beneficial Owners may give the Reporting Company their FinCEN identifier number, if they have one.
What is a FinCEN Identifier Number?
A FinCEN identifier number is a number FinCEN can issue to a Beneficial Owner or Company Applicant after they provide their identifying information to FinCEN directly. That FinCEN identifier number can then be given to the Reporting Company for its filing instead of giving the Reporting Company the Beneficial Owner’s or Company Applicant’s personal information, i.e. name, date of birth, identifying document, etc.
When are the initial filings due?
For companies formed prior to 2024, the filings are due by January 1, 2025. For companies that are created in 2024, the filings are due within 90 days of when they are formed. For companies that are created in 2025, the filings are due within 30 days of when they are formed.
Are any filings required after the initial filing?
Yes. If there is a change regarding the Reporting Company or the Beneficial Owners, an updated filing reflecting the change is due within 30 days of the change.
Is the information filed available to the public?
No. The CTA database is primarily accessible only to law enforcement agencies, financial institutions with the consent of the Reporting Company to assist with due diligence activities, and to federal agencies assisting foreign governments with law enforcement activities.
What happens if a company does not file?
Penalties for willful noncompliance include civil penalties of $500/day while the violation continues and a criminal fine of up to $10,000 and/or two years in prison.
Although the CTA was enacted over three years ago, crunch time has finally arrived for its implementation because filings for Reporting Companies formed prior to 2024 are due by the end of the year. In addition, Reporting Companies formed this year have only 90 days to file and those created next year will have only 30 days to file.
In time, the filing process will likely become easily understood and commonplace. In the short term, however, there will likely be a lot of uncertainty about whether a company needs to file and what should be included in that filing. Owners of companies would be well advised to seek legal counsel to ensure they are in compliance with CTA requirements.
Matthew J. Dorsey, Esq. is a Shareholder with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs, NY. Over his twenty-seven years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at 518-584-5205, This email address is being protected from spambots. You need JavaScript enabled to view it. and www.oalaw.com.
