To combat the Vito Corleones of the world, Congress passed the Corporate Transparency Act (CTA) in 2021. The CTA will impact millions of current and future corporations and LLCs. 

Most states do not require information on the beneficial owners of corporations and LLCs to be filed. Bad actors utilize this system to obfuscate their true identities and facilitate illegal activities such as financial fraud, money laundering, financing terrorism, major tax fraud, counterfeiting, drug and human trafficking, and more.

The CTA requires reporting companies to submit information on their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury. Reporting companies include any entity either: 

1. Created by the filing of a document with a secretary of state or a similar office under the law of a state or Native American tribe; or
2. 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 a similar office under the laws of a state or Native American tribe.

There are some entities exempt from this requirement to submit beneficial ownership information, including nonprofits, publicly traded companies, and large operating companies that meet specific criteria. 

At this time, there is no application process to confirm with FinCEN that your entity qualifies under one of these exemptions; thus, it is the responsibility
of each entity to determine if they qualify and whether they will continue to qualify in the future.

Each reporting company will need to report its:

• Legal name
• Trade names, “doing business as” names, or “trading as” names
• Current street address of its principal place of business if in the U.S. or the current address from which the company conducts business in the U.S. if its principal place of business is not the U.S.
• Jurisdiction of formation or registration
• Taxpayer Identification Number or a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction for foreign entities

Specific individuals are deemed to exercise substantial control if they are a senior officer, have the authority to appoint or remove certain officers or a majority of directors, are an important decision-maker for the reporting company, or have any other form of substantial control over the reporting company.

Beneficial owners of entities include any individual who either:

1. Directly or indirectly exercises substantial control over the entity; or

2. Owns or controls 25% or more of the ownership interests of the entity.

In addition to the information required about the reporting company, all such entities will need to report the following information on each beneficial owner:

• Name
• Date of birth
• Current residential address
• An identifying number from an acceptable identification document
• An image of the identification document used to obtain the identifying number

Individuals and reporting companies who want an added layer of privacy may apply online for a FinCEN identifier. FinCEN will issue this unique identifying number that can be used in lieu of the otherwise required personal information on a beneficial ownership report.  Each individual and reporting company is responsible for updating the information tied to their FinCEN identifier within 30 days of any changes.

Reporting companies created or registered on or after Jan. 1, 2024, must also report their company applicants. There will be a max of two company applicants per reporting company, which will consist of: 

• The individual who directly files the document creating or registering the company 
• If more than one person is involved in the filing, the individual primarily responsible for directing or controlling the filing

Each reporting company will be responsible for reporting the same information for company applicants as required of each beneficial owner.

Entities registered or created before Jan. 1, 2024, must report by Jan. 1, 2025. Entities created or registered in 2024 must report within 90 calendar days after receiving public or actual notice that the entity’s creation or registration is effective, whichever is earlier. 

Entities created or registered on or after Jan. 1, 2025, must file within 30 calendar days after receiving public or actual notice that the entity’s creation or registration is effective. 

Any changes to reported information must be reported within 30 days of the change.

The CTA provides that a person who willfully violates requirements may be subject to civil penalties of up to $500 for each day the violation continues, criminal penalties of up to two years imprisonment, and a fine up to $10,000.

In March 2024, the U.S. District Court for Northern Alabama held that the CTA was unconstitutional. In response, FinCEN issued a notice that it will enforce the CTA, narrowing the ruling to only the case plaintiffs. As this law evolves, requirements and reporting deadlines may change.

If you think the CTA might impact your entity, talk to your attorney to determine your reporting requirements.

Kathryn Sawyer joined TCO’s Trust Services department in December 2023.