The Corporate Transparency Act (“CTA”) is a federal law that was enacted in 2021 and took effect on January 1, 2024. Under the CTA, certain businesses must report the beneficial owners of the company to the U.S. Department of the Treasury’s Financial Crime Enforcement Network (“FinCEN”). This blog post is intended to alert you to the disclosure requirements your company may be subject to.

1 – What is the purpose of the CTA?

Under the CTA, FinCEN collects information that identifies the beneficial owners (the “Beneficial Owners,”each being a “Beneficial Owner”) of certain business entities (the “Reporting Companies”). The reporting of such information is intended to help prevent financial crimes such as money laundering, terrorist financing and tax fraud.

2 – What businesses fall under the reporting requirement?

Any non-exempt entity (a corporation, LLC, or similar entity) that is “created” by the filing of a document with the applicable secretary of state.

3 – What businesses are exempt from reporting?

There are 23 categories of businesses that are exempt from the reporting obligations.  Most exemptions are intended to apply to large companies or industries that are already heavily regulated. The exemptions include:

4 – Who must be disclosed to FinCEN as a Beneficial Owner?

The Reporting Company must report all individuals who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the Reporting Company’s ownership interests.

1. Substantial Control may include non-owners, such as LLC Managers or a corporation’s Directors and Officers.
2. 25% Owners may also include parties without equity but a security interest in equity, or parties with an option to convert debt to equity, or option to purchase equity.

Reporting Companies formed after December 31, 2023, must also report the company’s Applicant. An Applicant includes the party or parties that either: (1) directly filed the document that created the entity; or (2) was primarily responsible for directing or controlling the creation of the entity.

5 – What information from the Beneficial Owner and Applicant must be disclosed?

1. Full legal name
2. Date of birth
3. Current residential address
4. Identification number and copy of identification
   1. U.S. passport
   2. U.S. state driver’s license
   3. Other governmental identification
   4. Foreign passport if party does not have i, ii, or iii

6 – When must Reporting Companies disclose Beneficial Owners to FinCEN?

1. Companies formed prior to January 1, 2024
   1. By January 1, 2025
2. Companies formed between January 1, 2024 and December 31, 2024
   1. 90 days after the company was registered with the Secretary of State
3. Companies formed January 1, 2025 or later
   1. 30 days after the company was registered with the Secretary of State
4. Once the initial disclosure is filed, Reporting Companies must file any changes to Beneficial Owners within thirty days of the change.

7 – How do Reporting Companies disclose Beneficial Owners to FinCEN?

Through FinCEN’s website:  www.fincen.gov/boi

8 – Has the CTA been overturned?

On March 1, 2024, in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), a federal district court in the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment, concluding that the CTA exceeds the Constitution’s limits on Congress’s power. The court further prevented the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs. The Justice Department, on behalf of the Department of the Treasury, filed a Notice of Appeal on March 11, 2024. As of this date, FinCEN continues to require the reporting of Beneficial Owners for all Reporting Companies not involved in the lawsuit.

9 – Questions

If you have questions regarding the CTA or need guidance in determining your company’s obligations under the CTA, please don’t hesitate to contact the attorneys at Rudolph Friedmann LLP.