The Corporate Transparency Act (CTA) requires that certain businesses disclose to FinCEN (Financial Crimes Enforcement Network) information about the company, such as its beneficial owners and, in some cases, the name of the applicant who set up the entity. The term “reporting companies” describes who must file and follow reporting requirements.
You are a “reporting company” and must comply with the Act by timely filing the required paperwork if your company has twenty (20) or fewer employees and was formed by filing paperwork with the Secretary of State of any State in the U.S.A. or the equivalent official (if called by some other name).
Any reporting company formed or registered before January 1, 2024, has until January 1, 2025, to file an initial report.
Companies formed or registered after January 1, 2024, must file a report thirty (30) days after the date of formation (that will usually be the date of the Secretary of State’s file stamp on the document submitted to set up the company).
The term “company” includes a corporation that uses suffixes after the name such as “Incorporated,” “Inc.,” “Corporation,” “Corp.,” or “Limited” or “Ltd.” or some other derivation of these and a limited liability company that uses “Limited Liability Company” or “LLC” or some other derivation of these). If in doubt, contact the lawyer who set up your company. If you set up your company yourself and you have questions about whether you are a “reporting company,” now would be a good time to consult with a lawyer.
As background, the CTA1 was enacted as part of the Anti-Money Laundering Act of 2020 (AMLA), and the new reporting requirements are intended to expose illegal activities, such as the use of shell companies to launder money or conceal illicit funds. It is estimated that around 30 million small businesses will be impacted by the law, which will establish a federal database of information, furnished by “reporting companies,” that will be accessible to certain governmental authorities and organizations.
A final rule has been issued stating how the new law will be implemented to help businesses understand whether the law applies to them, how to comply, and which agencies will have access to the information they must report. CTA violations carry civil and criminal penalties, including imprisonment.
Why was the CTA passed?
The CTA was passed as part of the National Defense Authorization Act for Fiscal Year 2021. It directs the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to gather information from private companies about their owners and controlling persons. Acting Director Himamauli Das said,
“FinCEN is taking aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing.”2
1 National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, 134 Stat. 3388 (Jan. 1, 2021). 2 Press Release, U.S. Dep’t of the Treasury, Financial Crimes Enforcement Network, FinCEN Issues Proposed Rule for Beneficial Ownership Reporting to Counter Illicit Finance and Increase Transparency (Dec. 7, 2021),
To counter the risks allegedly posed by anonymous shell companies, the CTA mandates the creation of a national registry that contains certain information about business entities that are formed by filing a document with a state’s secretary of state or similar office.
What information must be provided in the reports?
The CTA requires three categories of information to be reported: company, owners, and applicant.
● Domestic reporting companies created before January 1, 2024, must provide information about the company and its beneficial owners.
o Beneficial owner is defined in the CTA as an individual who exercises “substantial control” over the reporting company or has an ownership interest of at least 25 percent. Company senior officers, directors, and others who make significant decisions on behalf of the company may meet this statutory definition of “substantial control,” although the broad definition may confuse in some instances.
● Domestic reporting companies created on or after January 1, 2024, must provide information about the company, its beneficial owners, and its company applicants.
o A company applicant generally is the individual who files the formation document with state authorities for the reporting company.
Technically, the information to be filed with FinCEN is called a Beneficial Ownership Information (BOI) Report. The following is what is required in the report for a company, an owner, and an applicant:
● The reporting company must provide its name and any alternative (DBA) names, the address of its principal place of business, the state of formation, and its taxpayer identification number or FinCEN identifier.
● Each beneficial owner of a reporting company must furnish their full legal name, date of birth, residential address, and identification number from a driver’s license, passport, or other state-issued identification (ID), along with a copy of the ID document.
● A company applicant is required to submit the same information as a beneficial owner.
Who has access to FinCEN BOI reports?
The CTA authorizes FinCEN to disclose BOI information to five categories of recipients:3
● US federal, state, local, and tribal government agencies
● Foreign law enforcement agencies, judges, prosecutors, and other authorities ● Financial institutions
● Federal regulators
● US Department of the Treasury
https://www.fincen.gov/news/news-releases/fincen-issues-proposed-rule-beneficial-ownership-reporting counter-illicit.
3 Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77404 (proposed Dec. 16, 2022).
FinCEN may only disclose BOI information “under specific circumstances”: there are more stringent requirements for agencies other than those engaged in national security, intelligence, and law enforcement activities. There are also restrictions on how the information may be used and how it must be secured.
The National Small Business Association has filed a lawsuit challenging the CTA’s constitutionality, in part on privacy grounds over sharing “sensitive information” with the government4. However, that lawsuit has not suspended or affected the CTA’s reporting requirements for reporting companies. Therefore, file the required paperwork to avoid possible penalties.
Are there penalties for noncompliance with the CTA? Penalties for noncompliance may be steep. Willingly providing false information (including false identifying documents) to FinCEN, or failing to report complete BOI information, can result in:
● Fines of $500 per day, up to $10,000
● Imprisonment for up to two years
Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submitted an updated report correcting the inaccurate information within ninety days.
Get help with CTA reporting requirements.
Terms like “beneficial owner” and “substantial control” may seem vague and confusing, further complicating compliance efforts. However, compliance is critical for business owners who want to avoid possible sanctions.
Do not hesitate to hire a lawyer to help you determine whether the CTA applies to your business and show you the steps needed to meet the CTA’s reporting requirements.
4 Dave LaChance, Small business group sues over federal ownership database, cites concerns over sharing ‘sensitive’ info, Repairer Driven News (Nov. 17, 2022), https://www.repairerdrivennews.com/2022/11/17/small-business group-sues-over-federal-ownership-database-cites-concerns-over-sharing-sensitive-info/.
