An Overview of the Corporate Transparency Act

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The Corporate Transparency Act (CTA) was enacted into law on January 1, 2021, as part of the 2021 National Defense Authorization Act. This mandate requires domestic and foreign legal entities to file a report with the Division of the Department of Treasury called the Financial Crimes Enforcement Network (FinCEN), which also regulates it. The report must provide personal information about the entities’ individual beneficial owners and applicants with the intent of preventing corrupt actors, terrorists, and criminals from laundering money in the United States.

Despite the Corporate Transparency Act being passed in 2021, CTA does not officially take effect until January 1, 2024. The initial filing deadline for any reporting company existing or registered before January 1, 2024, is not until January 1, 2025

Reporting Companies

Under CTA, every entity is considered a “reporting company” unless an exemption applies. The Corporate Transparency Act outlines 23 exemptions for reporting companies. Generally, these exemptions apply to “large operating entities”. In this case, ‘large entities’ refers to businesses with a fiscal presence in the United States that have both more than 20 full-time employees and more than $5 million in gross receipts or sales in the prior fiscal year as reported to the Internal Revenue Service. The exemptions also include entities that are already subject to significant state or federal regulation, such as insurance companies, banks, and public companies.

A reporting company is classified as any legal entity that is:

• Created by the filing of a document with the secretary of state or a similar office under the law of a State or Indian Tribe
• Formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a State or Indian Tribe

These criteria include but are not limited to corporations, LLCs, most partnerships, certain trusts, and other entities.

‘Reporting companies’ must provide FinCEN with personal identifying information about all their beneficial owners and company applicants. Therefore, once you’ve verified that your company is a non-exempt “reporting company”, you can begin identifying your beneficial owners and company applicants.

Beneficial Owners and Company Applicants

A ‘beneficial owner’ is any person who either directly or indirectly exercises substantial control over the reporting company, or owns at least 25% of its ownership interests. For a domestic reporting company, a company applicant is any individual who files the document that forms the entity. And for a foreign reporting company, the company applicant is any individual who files the document that first registers the company to do business.

After identifying your beneficial owners and company applicants, the next step is to collect the personal information about the beneficial owners and company applicants that must be reported to FinCEN. In addition, you’ll also need to gather information about the reporting company itself.

Beneficial Owners and Company Applicants must provide:

• Full name
• Date of birth
• Current residential address
• Unique identifying number from an acceptable document (passport, state ID card, or driver’s license)

Reporting Companies must provide:

• Company’s full name
• Any trade or doing business as (DBA) names
• Business street address
• Date of formation (for domestic companies only)
• First date of registration (for foreign companies only)
• IRS Taxpayer Identification Number, DUNS numbers, or legal entity identifier

For more information about the Corporate Transparency Act and how your firm can prepare for ongoing compliance, download EntityKeeper’s free “Corporate Transparency Act Compliance Toolkit”, which includes a timeline of key dates, a checklist to plan for CTA, and strategies to prepare for compliance.

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Ready to learn more about how EntityKeeper can help you track filing deadlines, remain CTA compliant, and manage your important legal documents in one central location? Get started with EntityKeeper today or request a demo to see the solution in action.

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