Corporate Transparency Act Compliance: What You Need to Know

By Jeremy Shaw, Sahar Ayinehsazian

Feb 13, 2024

Corporate Transparency Act Compliance: New Reporting Obligations Effective January 2024 

Beginning on January 1, 2024, certain reporting companies are now required to comply with the disclosure requirements of the Corporate Transparency Act (CTA). This law aims to enhance transparency in corporate ownership, impacting both domestic and foreign entities operating in the United States. Practically, the CTA represents a new area of corporate regulatory compliance that must be evaluated by all business owners conducting business in the United States.  

Below is an overview of the key compliance points. Please reach out to our team to discuss addressing compliance for your existing entities and all newly formed entities going forward. 

Entities Covered by the CTA 

The CTA broadly covers two main types of entities, subject to exceptions: 

Domestic Reporting Companies 

• Definition: Any corporation, limited liability company (LLC), or similar entity created by filing with a secretary of state or similar office of a state or Indian tribe 
• Examples: Corporations, LLCs, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships created through filing with a secretary of state or similar office 

Foreign Reporting Companies 

• Definition: Any corporation, LLC, or other entity formed under the laws of a foreign country, registered to do business in any U.S. state or tribal jurisdiction by filing with a secretary of state or similar office 
• Examples: Foreign entities operating in the U.S. through registration 

Penalties for Non-Compliance 

The penalties for failure to comply with the CTA’s reporting requirements can include civil penalties of up to $500 per day that a violation is continuing, as well as potential criminal penalties of up to two years imprisonment and a fine of up to $10,000. 

What Needs to be Disclosed and When 

For Existing Domestic and Foreign Reporting Companies (Formed Before Jan. 1, 2024): 

• Timeline: File by Jan. 1, 2025. 
• Information to Disclose: 
  • Full legal name and any trade name 
  • Complete current US address 
  • Jurisdiction of formation or registration 
  • Internal Revenue Service Taxpayer Identification Number (TIN) 
  • Beneficial owners: Full legal name, date of birth, complete current address, identifying information, and a picture of a U.S. government ID 

For New Domestic and Foreign Reporting Companies Formed in 2024: 

• Timeline: Within 90 calendar days of effective creation. 
• Information to Disclose: 
  • Full legal name and any trade name 
  • Complete current US address 
  • Jurisdiction of formation or registration 
  • Internal Revenue Service Taxpayer Identification Number (TIN) 
  • Beneficial owners: Full legal name, date of birth, complete current address, identifying information, and a picture of a U.S. government ID (or foreign passport if such beneficial owner does not have a US government ID). 
  • Company applicants: Full legal name, date of birth, complete current address, identifying information, and a picture of a U.S. government ID (or foreign passport if such beneficial owner does not have a US government ID) 

For New Domestic or Foreign Reporting Companies Formed on or After Jan. 1, 2025: 

• Timeline: Within 30 calendar days of effective creation 
• Information to Disclose: 
  • Full legal name and any trade name 
  • Complete current US address 
  • Jurisdiction of formation or registration 
  • Internal Revenue Service Taxpayer Identification Number (TIN) 
  • Beneficial owners: Full legal name, date of birth, complete current address, identifying information, and a picture of a U.S. government ID (or foreign passport if such beneficial owner does not have a US government ID) 
  • Company applicants: Full legal name, date of birth, complete current address, identifying information, and a picture of a U.S. government ID (or foreign passport if such beneficial owner does not have a US government ID) 

Defining Beneficial Owners 

Under the CTA, beneficial owners are (a) individuals that direct, determine, or have substantial influence over the reporting company’s business, finances, and structure, or (b) have direct or indirect ownership of at least 25% of the reporting company (which may also be in the form of convertible securities).  

The Act provides specific criteria, covering positions like president, CEO, or those with influence over crucial decisions. Individuals associated with management companies providing services to a reporting company, or individuals associated with other third parties transacting with the reporting company may also be considered beneficial owners to the extent that they are able to direct, determine, or exert substantial influence over important decisions of the reporting company. Understanding and identifying beneficial owners within your company is imperative.  

Company Applicants 

A "company applicant" is the individual responsible for filing documents to form a U.S. entity or register a foreign entity in the U.S. The individual primarily responsible for directing or controlling such filing is also considered a company applicant. This includes outside attorneys, paralegals, and vendors to the reporting company. 

Access to Information 

Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, will be permitted to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. This could include cannabis regulatory authorities in connection with their investigative and enforcement powers. 

Exemptions from Reporting 

Certain entities are exempt from reporting under the CTA. Exempt entities include: 

1. Large Operating Companies 
   • Definition: Entities employing more than 20 full-time employees in the U.S., and filing federal income tax returns with over $5,000,000 in gross receipts, and having an operating presence at a physical office within the U.S. 
   • Note: Employees are measured on an entity-by-entity basis so holding companies would likely not fit into this exemption. We anticipate this to require filings for many clients.   
2. Publicly Traded Companies 
3. Certain Financial Services Companies 
   • Including banks, credit unions, depository institution holding companies, insurance companies, registered money services businesses, registered investment companies and investment advisors 
4. Pooled Investment Vehicles 
5. Registered Entities under the Commodity Exchange Act 
6. Public Accounting Firms 
7. State-Licensed Insurance Producers 
8. Certain Tax-Exempt Entities 
9. Certain wholly owned subsidiaries of exempt entities 
10. Inactive Entities 
    • Definition: the entity must meet all of the following six criteria: (i) the entity was in existence on or before January 1, 2020, (ii) the entity is not engaged in active business, (iii) the entity is not owned by a foreign person, (iv), the entity has not experienced a change of ownership in the preceding 12 month period, (v) the entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12 month period; and the entity does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity. 

Contact Us 

The CTA represents a new layer of corporate compliance and disclosure requirements, which will necessitate ongoing internal evaluations and reporting for a wide array of businesses and entities. Corporate managers should be proactive in understanding the requirements, identifying beneficial owners, and meeting filing deadlines. Reach out to our team to discuss a compliance strategy for your entities under the Corporate Transparency Act.