Corporate Transparency Act

What You Need to Know About the Corporate Transparency Act (CTA)

23 May 2024

As a business owner, you may already have heard that the Corporate Transparency Act (“CTA”) took effect on January 1, 2024. The CTA requires all entities formed or registered to do business in the United States to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) unless an exemption applies.

What’s the Purpose of the Corporate Transparency Act?

The Corporate Transparency Act was designed to increase transparency and combat tax fraud, money laundering, and other illegal activities. While the government can easily look into information on business structure and ownership of large corporations, there has been little to no transparency when it comes to small businesses. With over 27,000,000 small businesses without employees in the United States, this act aims to target these small businesses. 

Do You Need to File?

The CTA applies to most small businesses in the United States, including foreign companies that are registered to do business in the U.S. These types of businesses include limited liability companies, limited partnerships, business trusts, most general partnerships, and corporations created by filing a document with the secretary of state or similar office under their state law. 

There are several exemptions to the filing requirements, but we expect that the majority of our clients will be non-exempt reporting entities and will be required to file. Additional information, including filing instructions and a complete list of exemptions, is available here: Beneficial Ownership Information Reporting | FinCEN.gov.

What Information Does the CTA Require?

The act refers to owners of companies as “beneficial owners.” These are defined as any individuals who, either directly or indirectly:

  • Exercise substantial control over a reporting company, or
  • Own or control at least 25% of the ownership interests of a reporting company

Each such beneficial owner is required to report his or her name, date of birth, address, and an identifying document (such as a passport or driver’s license) as well as a photo of that document.

Are There Any Privacy Concerns? 

Although you are reporting personal information, this information will not be made publicly available. It is only going to be accessible by certain government agencies, financial institutions, and used for law enforcement, national security, and intelligence purposes. 

What are the Deadlines to File?

The deadlines for filing vary depending on when you started your business. There are three primary deadlines that you should be aware of. 

January 1, 2025:

All non-exempt entities formed before January 1, 2024, to comply with the reporting requirements need to file by January 1, 2025. 

Within 90 Days of Business Formation or Registration:

Any new non-exempt entities formed or registered to do business in the United States between January 1 and December 31 of this year must file within ninety days of the date of formation or registration. 

Within 30 Days of Business Formation or Registration:

Any new non-exempt entities formed after December 31, 2024, must file within 30 days of the date of formation or registration.

Do I Need to File Every Year?

No, this is a one-time filing, however, if there are any changes to the reported beneficial ownership, an amended report must be filed within thirty days of such change.

Are There Any Penalties for Noncompliance?

If you choose not to file or provide false information, you can be subject to fines and even criminal penalties. The CTA provides for civil fines of $500 per day and up to $10,000 per violation of the act. If you fail to comply or find yourself with multiple violations, you can face tens of thousands of dollars in fines. Additionally, the criminal penalty for violations of the act is up to two years of imprisonment.

What about the Recent Disputes about the Constitutionality of the CTA?

There have been some legal challenges to the CTA in recent months. On March 1, 2024, a federal judge in Alabama ruled that the CTA is unconstitutional. However, at this time, the ruling is limited to the plaintiffs in this particular case at issue (members of the National Small Business Association). Unless the Treasury Department announces that it will suspend CTA enforcement for all reporting entities (which it has not yet done), filings are still required. We will continue to monitor the situation and will update our clients in the event of any change in the reporting requirements.

Contact West Hill if You Have Questions 

While this new requirement may seem overwhelming at first, the best thing you can do is familiarize yourself with the CTA and reach out to a trusted legal professional if you have questions. We anticipate that we will be helping a majority of our clients file, so please do not hesitate to reach out to us if you have any questions or require any assistance to comply with these new filing requirements.