Corporate Transparency Act – FAQ

Updated November 30, 2023

The Corporate Transparency Act (CTA) is an anti-money laundering statute passed by the United States Congress in 2021 that requires certain companies to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Under CTA, all beneficial owners and officers are required to register with the US Treasury. In short, the CTA effectively prohibits the anonymous ownership of most entities, whether in the form of corporations, LLCs, partnerships, or otherwise.

This FAQ provides answers to some of the most common questions about the CTA, including which entities are affected, what information needs to be disclosed, and when reports need to be submitted.

What types of entities are affected?

The CTA applies to corporations, LLCs, partnerships, and other similar entities that are formed or registered to do business in the United States by the filing of a document with a Secretary of State or similar office.

What types of entities are exempt?

The CTA does not apply to publicly traded companies, banks, credit unions, and certain other financial institutions that are already subject to regulatory reporting requirements. Non-profit organizations are also exempt from reporting requirements; however, non-profits should be careful to keep up with their annual 990 reporting so as not to lose their tax-exempt status (and CTA exemption).  CTA also does not apply to entities that employ more than 20 full-time employees and generate more than $5 million in annual revenue.  This exemption requires both tests to be met and is lost if the entity drops below either threshold.

Which individuals associated with the entity must disclose personal information?

Companies subject to the CTA must identify and report information about their “beneficial owners,” which includes (a) the entity’s officers or managers and (b) individuals who directly or indirectly own or control 25% or more of the ownership interests in the company. “Company applicants” who file documents that create or register a reporting company with a Secretary of State or similar office will also need to disclose their personal information.

What information is required to be disclosed by company applicants and beneficial owners?

Each company applicant and beneficial owner must disclose their full legal name, date of birth, current address, and unique identifying number from an acceptable identification document (such as a driver’s license or passport), along with a copy of the related identification document. Note that most beneficial owners must submit a residential address, whereas a business address is permitted for individuals who form entities in the course of their employment).

When does information have to be submitted?

Entities formed before January 1, 2024, will have one year from that date to file their initial reports. Entities formed on or after January 1, 2024, will have 90 days to submit their initial reports. Any changes to the submitted information, such as a change in address or identification number, must be updated within 30 days following the change.

How is the information submitted?

Reports will be submitted electronically through FinCEN’s secure database system. Individuals who are company applicants or beneficial owners of multiple companies will be able to submit their information to the database and obtain a unique FinCEN identifier that can be used for future reporting.

What are the penalties for failure to comply?

The failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.

Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure. Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required report or to report incomplete or false beneficial ownership information to FinCEN.

Where can I get more information?

FinCEN has released a helpful compliance guide for small businesses, available at: fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf

What steps should be taken at this time?

We recommend reviewing your business structure to determine whether the CTA will apply to your existing entities and any entities you plan to create. If the CTA applies, you should begin identifying beneficial owners and gathering the necessary information required for reporting. As noted above, existing businesses will have until January 1, 2025, to submit an initial report. New entities formed on January 1, 2024 or after must file a report within 30 days of formation (unless this timeline is extended by FinCEN).

How can PRK Livengood help?

We are happy to assist clients in determining whether the CTA will apply to their existing and expected business entities. We are in the process of evaluating how best we can support clients in making any necessary CTA filings. Please note that, even if you are a current client of the firm, our existing engagement does not cover assistance with filing CTA reports and any such services will require a separate engagement with the firm.

Firm Contacts:

UPDATE: On March 1, 2024 a federal district court declared the Corporate Transparency Act (“CTA”) unconstitutional in Alabama, in an action brought by an individual and the National Federation of Small Business. However, Washingtonians must still comply. Read more here.