Navigating the Corporate Transparency Act: What You Need to Know Now

Starting this year, the Corporate Transparency Act (CTA) requires most entities (Reporting Companies) to report certain information to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN). 

Entities formed in 2024 will have 90 days from the date of formation to report required information, while existing entities will have one year and entities formed in 2025 or later will have only 30 days from the date of formation.

Who This Impacts 

Reporting Companies include all business entities that are formed in or registered to do business in the United States, except publicly traded companies, banks, tax-exempt entities, and large companies with more than 20 full-time U.S. employees and $5 million in gross receipts.

Reporting Companies are required to disclose certain identifying information relating to their Beneficial Owners and Company Applicants to FinCEN. Beneficial Owners are persons who, directly or indirectly, either hold a 25% or more ownership interest in or exercise Substantial Control over the company. The definition of Substantial Control is very broad and can include, among others, individuals who serve in a senior officer role or on the board of directors; have the power to appoint or remove board members or senior officers; or otherwise can direct, determine or have substantial influence over important decisions of the company. Company Applicants are individuals who file the Reporting Company’s formation documents (e.g., an attorney who files articles of incorporation for the Reporting Company).

What Will Be Required

For each Beneficial Owner and Company Applicant, a Reporting Company must submit (i) their full legal name, (ii) their date of birth, (iii) their complete current address (home address for Beneficial Owners and business address for Company Applicants), (iv) a unique identifying number from a current passport or state ID, and (v) a photocopy of a current passport or state ID.

Many individuals will likely find it intrusive to provide their home address or copies of their identification to Reporting Companies. The required disclosures can be limited by obtaining FinCEN Identifiers, which are special identification numbers that can be provided in lieu of the items described above. In the interest of privacy and efficiency, FinCEN Identifiers should be obtained for (i) individuals who hold interests in several entities, (ii) lawyers, paralegals and other professionals who are responsible for filing formation documents as part of their professions, and (iii) entities that own interests in other Reporting Companies. 

Reporting Companies are under an obligation to update FinCEN with respect to any changes to the required information previously provided. Therefore, the use of FinCEN Identifiers may streamline the updating process. The holder of a FinCEN Identifier must update FinCEN when information changes; however, the holder should not be required to provide any such updates to Reporting Companies (nor should Reporting Companies be required to provide the updated information to FinCEN).

FinCEN is not authorized to publicly disclose the information it receives under the CTA; however, it may make disclosures under certain parameters to federal, state, tribal and foreign government agencies as well as financial institutions.

Why It Matters

Understanding the intricacies of the Corporate Transparency Act is vital for individuals and entities alike. Compliance with these reporting requirements not only ensures adherence to legal obligations but also safeguards against potential penalties. Staying informed about the CTA provisions, grasping the nuances of what information needs to be disclosed, and exploring avenues like FinCEN Identifiers are pivotal in maintaining transparency within corporate structures while safeguarding personal and organizational privacy.

Glaser Weil attorneys are available to help Reporting Companies, Beneficial Owners and Company Applicants fulfill their CTA obligations.