The Corporate Transparency Act (CTA) Compliance Overview

By: Randall A. Denha, J.D., LL.M.

As the Corporate Transparency Act (CTA) took effect on January 1, 2024, it introduced significant reporting obligations for a wide array of entities, both domestic and foreign. This legislation mandates that “reporting companies” disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury. The CTA aims to enhance transparency and combat financial crimes by requiring detailed reporting on the individuals who own, control, or significantly influence these entities.

As the year-end approaches, the window for CTA compliance narrows, urging Reporting Companies to proactively position themselves for the January 1, 2025, filing deadline. It’s important to recognize that navigating the reporting requirements under the CTA is intricate and demands a thorough, entity-specific analysis. FinCEN warns of the likelihood of technical disruptions or website downtimes in the final fortnight of the year, attributed to the anticipated surge in filings. They have clearly stated that technical failures or challenges in submitting filings will not serve as a valid excuse for late submissions. Therefore, it is imperative that entities prioritize their CTA compliance efforts well in advance of the year’s end, ensuring ample time is dedicated to identifying applicable Reporting Companies and organizing the necessary filings. We advise our clients to err on the side of caution and submit their filings earlier rather than risk last-minute complications.

Who is Subject to Reporting?

Under the CTA, the term “reporting companies” encompasses a broad range of entities:

1. Domestic entities such as corporations, limited liability companies, and limited partnerships formed by filing a document with a Secretary of State or similar office in any U.S. state or tribal jurisdiction.

2. Foreign entities that are registered to do business in any U.S. state, territory, possession, or tribal jurisdiction by filing with a state Secretary of State or equivalent office.

Exceptions exist for entities that fall under one of 23 exemptions specified by the CTA, largely aimed at entities already subject to substantial regulation (e.g., banks, credit unions, insurance companies) or that meet certain criteria reducing their risk profile for money laundering or terrorist financing (e.g., large operating companies with a significant physical presence and revenues in the U.S.).

Reporting Requirements and Deadlines

The CTA requires the disclosure of comprehensive information about the reporting company and its beneficial owners. A “beneficial owner” is defined as any individual who directly or indirectly owns at least 25% of the ownership interests or exercises substantial control over the entity. Additionally, for entities formed on or after January 1, 2024, information about “company applicants” (those who file the formation or registration documents) must also be reported.

Key deadlines include:

– Entities formed or registered before January 1, 2024, must submit their initial BOI reports by January 1, 2025.

– Entities formed or registered during the 2024 calendar year have 90 days post-formation or registration to file.

– Entities formed or registered on or after January 1, 2025, are given 30 days to comply.

– While no annual or periodic filings are mandated post-initial report, any changes in previously reported information necessitate an updated filing within 30 days.

Non-Compliance Risks

Failure to meet CTA requirements can result in severe penalties, including fines up to $10,000 and imprisonment for up to two years. Given the implications, entities are urged to review their status under the CTA promptly.

Recent Developments and Legal Challenges

Since the CTA’s implementation, FinCEN has provided further guidance through over 100 FAQs and addressed reporting for dissolved entities and the specifics of the subsidiary exemption. Despite legal challenges and legislative proposals aimed at amending or repealing the CTA, compliance remains mandatory.

Action Steps

Entities should take immediate steps to determine their reporting obligations under the CTA, identify beneficial owners and company applicants, gather necessary information, and prepare to file their BOI reports by the applicable deadlines. In cases of uncertainty, the principle of erring on the side of overreporting is advised.

Conclusion The CTA represents a significant shift towards greater corporate transparency in the U.S. As the deadlines approach, entities must act swiftly to ensure compliance and avoid the potential repercussions of non-compliance.