Understanding the Corporate Transparency Act

Essential Information for Entrepreneurs and Business Owners

As of January 1, 2024, the Corporate Transparency Act (CTA) has gone into effect, bringing significant changes to the regulatory landscape for businesses across the United States. At Nickerson Law Group, we recognize the importance of keeping our clients informed and compliant with new legal requirements. 

Here’s what you need to know about the CTA and the steps you should take to ensure compliance.

What is the Corporate Transparency Act?

The CTA aims to combat illicit activities such as money laundering, tax fraud, and terrorism financing by increasing transparency in business ownership. It requires specific U.S. businesses to report detailed information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

Who Needs to Report?

Many domestic and foreign companies operating in the U.S. are subject to the CTA’s reporting requirements. This includes:

  • Corporations
  • Limited Liability Companies (LLCs)
  • Other entities created by filing a document with a secretary of state or a similar office
    • Business Trusts and Statutory Trusts:
      • These entities are created by filing trust documents with the state. They are often used in real estate and other business arrangements.
    • Non-Profit Organizations:
      • Many non-profits, especially those that are incorporated, are required to file formation documents with the state. However, some non-profits may be exempt from reporting under the CTA, depending on their specific circumstances and state laws.
    • Other Entity Types:
      • Any other entity that is created by filing a formal document with a secretary of state or a similar office, such as certain cooperative associations or professional associations.

However, certain entities are exempt from reporting, such as:

  • Regulated entities like banks, credit unions, and insurance companies
  • Large operating companies meeting specific criteria

A “large operating company” is exempt from reporting if it meets all the following criteria:

Employee Threshold

The company is exempt if it has more than 20 full-time employees in the United States. This requirement ensures that the exemption is targeted at substantial, established businesses rather than smaller entities or shell companies​​.

Revenue Threshold

The company is exempt if it has reported more than $5 million in gross receipts or sales in the previous year. This figure is reported on the company’s U.S. federal income tax return, indicating a significant level of business activity​​.

Operational Presence

The company must have an operating presence at a physical office within the United States. This means the business must maintain an active physical location where it conducts its operations, rather than being a virtual or shell entity​​.

Other Exempt Entities

In addition to large operating companies, several other types of entities are exempt from the CTA reporting requirements:

Regulated Entities

Entities already subject to substantial federal or state regulation, such as banks, credit unions, and insurance companies, are exempt because they are already required to report ownership information to regulatory authorities​​.

Inactive Entities

Certain inactive entities that have not engaged in any business activity and hold no assets may also be exempt, provided they meet specific conditions set out by FinCEN​​.

Subsidiaries of Exempt Entities

If a company is wholly owned by one or more entities that are themselves exempt, it may not need to report its beneficial ownership information​.

Publicly Traded Companies

Companies that issue securities registered under Section 12 of the Securities Exchange Act of 1934, or that are required to file reports under Section 15(d) of the same Act, are exempt because they already disclose ownership information to the Securities and Exchange Commission (SEC)​.

What Information Must Be Reported?

Businesses must report the following information about their beneficial owners:

  • Full legal name
  • Date of birth
  • Home address
  • An identifying number from a driver’s license, passport, or other approved document
  • An image of the document containing the identifying number

For entities formed after January 1, 2024, information about company applicants (those responsible for filing the formation documents) must also be reported.

Reporting Deadlines

Existing Entities (formed before January 1, 2024)

Must file their initial reports by January 1, 2025.

New Entities (formed on or after January 1, 2024)

Must file their reports within 90 days of formation or registration.

New Entities (formed after January 1, 2025)

Must file their reports within 30 days of formation or registration.

Updates and Corrections

If there are changes in the reported information, businesses must update their reports within 30 days. Corrections to any inaccuracies must also be made within 30 days of discovering the error​.

Penalties for Non-Compliance

Failure to comply with the CTA can result in severe penalties:

  • Civil penalties of up to $500 per day for each day the violation continues
  • Criminal penalties, including fines up to $10,000 and imprisonment for up to two years​

How to Comply with the Corporate Transparency Act

Identify Beneficial Owners

Determine who qualifies as a beneficial owner under the CTA’s criteria.

Gather Required Information

Collect the necessary information about each beneficial owner and company applicant.

Submit Reports

File the required reports through FinCEN’s Beneficial Ownership Secure System (BOSS).

Consult Professionals

Given the complexities of the CTA, it is advisable to consult with legal or accounting professionals to ensure compliance.

Get Started with Your Reporting

The Corporate Transparency Act introduces new compliance requirements that all business owners must be aware of. At Nickerson Law Group, we help our clients navigate these changes and ensure their business remains compliant. This is just one reason why having trusted legal counsel is so important.

For more detailed information and resources, visit the FinCEN website

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