Corporate Transparency Act

The Corporate Transparency Act (CTA) is a law that requires certain businesses to disclose ownership and other information to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The purpose of the CTA is to combat financial crime and assist law enforcement in detecting criminal activity by creating a centralized database of information about who owns and operates US businesses. Enacted in 2021, the law is set to go into effect starting January 1, 2024. The CTA has broad reporting implications for current businesses and businesses formed after January 1, 2024.

The CTA requires information about the “reporting company,” each “beneficial owner” of the company, and any “company applicants”. After the initial report, there is no annual or quarterly filing requirement, only that the company must update its documents if its information has changed.

Reporting companies operate in the US and were either formed with US law (domestic reporting company) or with foreign law (foreign reporting company). A reporting company must disclose its full legal name, trade name, current US address, state or foreign jurisdiction of formation, IRS ID and EINs, and state jurisdiction of first registration for foreign reporting companies. Beneficial Owners are individuals who either substantially control the reporting company (examples include senior officers like presidents, CEOs, etc.) or own at least twenty-five percent of the company’s ownership interest. Company Applicants are individuals who either directly filed the documents that created the reporting company or were primarily responsible for directing the filing. Companies must report the beneficial owner and company applicant’s full legal name, date of birth, current address, and a unique identifying number like a US state driver’s license or foreign passport.

If the reporting company exists before January 1, 2024, it must file its initial report by January 1, 2025. If the company is created after January 1, 2024, it only has thirty days after its creation to make its filing. Failure to make these required filings can lead to civil and criminal penalties as severe as two years imprisonment and/or $10,000 in fines. 

Save for a few exceptions, the CTA will affect most companies operating in the US. Therefore, companies must know the information they are required to report and the timeline to file these required reports.

Luca Tappa, Law Clerk, BridgehouseLaw LLP, Charlotte