Understanding the Corporate Transparency Act (CTA) is crucial for businesses in today’s
evolving regulatory landscape. This blog post serves as your one-stop guide, unraveling the
key provisions and equipping you with the knowledge to navigate its requirements
effectively.
Prior to the CTA (enacted in 2021), complex ownership structures and shell companies masked the identities of individuals involved in illicit activities. This lack of transparency
hindered law enforcement efforts to combat financial crimes like money laundering and
terrorist financing.
Addressing this critical issue, the CTA establishes a national beneficial ownership registry.
By requiring certain “Reporting Companies” to disclose information about their true
“Beneficial Owners”, the Act shines a light on previously opaque structures and makes it
harder for criminals to hide. This enhanced transparency is designed to strengthen the US
financial system and safeguard national security.
What is a Reporting Company?
The CTA applies to various business entities, including:
● Corporations (C-Corps and S-Corps)
● Limited Liability Companies (LLCs)
● Certain trusts
Who is a Beneficial Owner?
Under the CTA, a beneficial owner is any individual who directly or indirectly:
● Owns or controls 25% or more of a reporting company’s equity interests.
● Exercises substantial control over the company, even without significant ownership.
● This includes individuals who:
○ Appoint or remove senior management or board members.
○ Significantly influence important company decisions.
○ Direct or control the disposition of significant assets.
○ Exert controlling influence, even if undocumented.
What Information Needs to be Reported?
Reporting companies must disclose the following information about their beneficial owners:
● Full legal name
● Date of birth
● Address
● Driver’s license or passport number (US citizens/permanent residents)
● Foreign taxpayer identification number (non-US citizens)
When and How Should Companies File Their Reports?
● New companies: File within 30 days of formation.
● Existing companies: File their initial report by January 1, 2025.
● Updates: Report any changes to beneficial ownership information within 30 days.
● Filing method: Reports are submitted electronically through the FinCEN Beneficial
Ownership Reporting System (BOIS) on the FinCEN website:
https://boiefiling.fincen.gov/
Large Operating Company Exception
Companies meeting all of the following criteria are exempt from reporting:
● Employees: Over 20 full-time employees in the US (as defined by IRS regulations).
● Revenue: Filed federal income tax returns for the previous year showing over $5 million in gross receipts or sales (excluding outside-US sources).
● Operating presence: Have a physical office within the United States.
Important Note: This is an “AND” test, meaning all three criteria must be met for exemption.
Reporting Requirements for Related Companies
The CTA clarifies reporting requirements for related companies (e.g., under common
ownership):
● Single Report: If multiple related companies share the same beneficial ownership
information, they can file one joint report (e.g., parent-subsidiary structures with
identical ownership).
● Separate Reports: However, separate reports are required if each related company
has distinct beneficial ownership information, even if they share some common
owners.
Penalties for Non-Compliance:
Failing to comply with the CTA reporting requirements can lead to significant penalties,
including:
● Up to $500 for each day a report is overdue, capped at $10,000 per violation● Imprisonment for up to two years.
Determining Your Filing Obligation and Additional Resources
The CTA is not governed under the Internal Revenue Code. Determining who constitutes a
beneficial owner can be complex and involves legal considerations that Baker Holtz is
unable to provide. Because we are not able to provide legal advice regarding whether
certain business relationships constitute beneficial ownership, we will not be filing the
reports.
We recommend consulting with a business attorney specializing in the Corporate
Transparency Act to ensure you meet your obligations accurately and efficiently. If you
currently do not work with a corporate attorney, we would be happy to provide you with a
short list of qualified candidates.
Taking Action:
The deadline for existing companies to file their initial CTA report is January 1, 2025. Here
are actionable steps you can take now:
● Assess your filing obligation: Evaluate your corporate structure and ownership
relationships. Do you fall under the CTA’s reporting requirements? Are there related
companies to consider?
● Gather information: Identify your beneficial owners and collect the necessary
information about them.
● Seek professional guidance: Consult with a business attorney specializing in the Act
for tailored advice.
● Leverage available resources: Utilize the FinCEN website for official guidance at
https://www.fincen.gov/boi
● Act promptly: Avoid last-minute delays and potential penalties by starting today.
Please contact us at 616-458-1835 if you have any questions.