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  • Writer's pictureDouglas Nelson

Prepare for the Corporate Transparency Act (CTA) - Significant New Federal Disclosures of Ownership Required

With the Corporate Transparency Act (CTA) having taken effect on January 1, 2024, many businesses will need to report certain information about their beneficial owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

New businesses must file a beneficial ownership report within 90 days of formation, and existing businesses must file a report before the end of this calendar year. After the initial report, updates and corrections must also be filed by reporting businesses within 30 days of a change or mistake.

corporate office with workers handling a pile of paperwork

Although a U.S. district court case declared the CTA unconstitutional (National Small Business United v. Yellen), the CTA remains in effect for all businesses not involved in that case. FinCEN will continue to enforce the CTA’s requirements as the Treasury Department appeals its court loss. 

If your business must comply with the CTA, you will need to assemble the personal information from an entity’s owners, as explained below, and to submit a report to FinCEN. Some kinds of entities are exempt from reporting, and some kinds of owners are excepted from their information being submitted. 

Who Must File a Beneficial Ownership Report? 

Almost all legal entities formed by filing with a U.S. state’s secretary of state (or similar office under state law), as well as foreign entities that register to do business in the United States. The CTA seeks to decrease illegal finance and money laundering by pulling in information from all these different entities that conduct business in the country. 

But not every entity must make a report to FinCEN. Certain entities and organizations are specifically exempted from reporting based on their size, other regulation, or status. 

  • Size exemption—businesses employing more than 20 full-time employees that also operate a physical office in the United States and filed federal income tax returns showing greater than $5 million in gross receipts from the previous year 

  • Other regulation—entities already highly regulated and listed in the CTA, such as issuers of securities under the Securities of Exchange Act of 1934, financial service providers and financial institutions (banks, credit unions, advisors, broker-dealers, pooled investment vehicles, public accounting firms, etc.), and insurance companies 

  • Status—501(c)3 tax-exempt organizations, governmental authorities, inactive entities, and wholly-owned subsidiaries of some, but not all, exempted entities.

Deciding whether your business must make a beneficial ownership report under the CTA is the first step to compliance and to ensuring that you and your business do not suffer from civil and criminal penalties, including fines and even jail time. 

What and Whose Information Must Go into a Report? 

The CTA requires information about a reporting entity and about its ownership. Entity information includes the entity’s legal name, address in the United States, any trade or fictitious names (d/b/a), jurisdiction of the entity’s formation (and for foreign entities, first jurisdiction of registration), and an IRS Taxpayer Identification Number (TIN) or foreign equivalent. 

Required Beneficial Ownership Information 

More complicated to bring together and report, however, is the beneficial ownership information of a reporting entity. A beneficial ownership report must include the following information from beneficial owners: 

  • Name 

  • Date of birth 

  • Current residential address 

  • A unique identification number from an identification document issued by a state, local, or tribal government—a non-expired foreign passport can be used if no other form exists 

  • An image of that document 

Certain individuals can apply for a FinCEN identifier, and a reporting entity can use it in place of this information for that individual. And of course, not every person or entity with an ownership interest in a reporting entity must be included. 

Beneficial Owners 

Beneficial owners include persons owning more than 25% of an entity or who exercise “substantial control” over the entity. Substantial control means serving as a senior office, having the authority to remove or appoint senior officers or the majority of a board of directors (or similar governing body), or having authority over important decisions of the company, or any other substantial control over a reporting entity. 

So persons with smaller ownership interests or who do not control an entity do not need to have their information included in a beneficial ownership report.

The following persons are also excepted from CTA reporting: 

  • Minors, if a parent or legal guardian’s information is reported 

  • Nominees, intermediaries, agents, and custodians on behalf of another person 

  • Employees who are not senior officers, acting solely as employees 

  • Individuals with only future interests through inheritance 

  • Creditors with only rights or interests in the repayment of sums or in covenants to secure or to increase the chance of repayment 

Company Applicants 

For entities forming or registering to do business after January 1, 2024, a “company applicant” must be identified with the same information as a beneficial owner (name, date of birth, address, identifying number and document, document image). Your company applicant is the person who is directly filed the formation or registration document for your entity with the secretary of state or similar official, and you may need to list a second company applicant if another person controlled that filing, even if they did not directly file the entity’s documents. Company applicants can also apply for a FinCEN identifier instead of supplying the same information for multiple reports. 

Let Us Help You Comply with the CTA 

CTA compliance requires evaluating whose information your entity needs to report and if your entity needs to report at all, which can change with changes in your circumstances. Noncompliance can end in civil fines for you and your business as well as criminal charges and penalties. 

Moustakas Nelson LLC stands ready to help you determine if your business needs to file a beneficial ownership report under the CTA. We can ensure that you collect all the information necessary to make a report and can serve as a company applicant, if you form or register a new business in the state and make an initial report. 

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