Get Prepared: How to Navigate the New CTA Reporting Requirements

ARTICLE | December 21, 2023

The Corporate Transparency Act (CTA) is set to introduce new reporting requirements for businesses across the United States. As of January 1, 2024, companies will need to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury. This mandate is part of a broader effort to combat financial crimes such as fraud, money laundering, and tax evasion.

The CTA applies to both domestic and foreign corporations, limited liability companies (LLCs), and other entities created by filing a document with a Secretary of State or a similar office in the U.S. This also includes foreign companies registered to do business in any U.S. state. 

However, the CTA does outline 23 exemptions, primarily targeting larger operating companies, inactive entities, and tax-exempt bodies. Businesses that employ more than 20 full-time employees, maintain a physical operating presence in the U.S., and reported gross receipts or sales exceeding $5 million in the previous year may also be exempt.

The central figure in these reports is the "beneficial owner." This individual either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests. The definition of "substantial control" can take various forms, including senior officers, individuals with the authority to appoint or remove certain officers or a majority of directors, key decision-makers, or any other form of substantial control over the reporting company. 

For newly formed entities, the CTA also requires the reporting of "company applicants." These are individuals who are involved in the creation or registration of the company. 

The information required in these reports includes the full legal name of the reporting company, any trade names, the address of the principal U.S. place of business, the state, tribal, or foreign jurisdiction of formation, and the IRS Taxpayer ID Number (TIN). For each beneficial owner and company applicant, the report must include their name, date of birth, address, unique identifying number, issuing jurisdiction, and an image of an identification document.

Entities in existence before January 1, 2024, must file their initial reports by January 1, 2025. For companies formed after December 31, 2023, the initial report must be filed within 90 days of formation. Any changes to the reported information or inaccuracies in previously filed reports must be updated within 30 days.

Non-compliance with the CTA carries severe penalties. Companies that fail to file the required reports or file false or misleading information can face civil penalties of up to $500 per day. Criminal penalties can include fines of up to $10,000 and a potential imprisonment term of up to two years.

The new reporting requirements represent a significant shift, and businesses should take the necessary steps to prepare. Companies should consult with legal counsel to understand their obligations under the CTA and ensure compliance. For more information, businesses can also refer to resources provided by FinCEN on its website.