The Corporate Transparency Act (CTA) emerged as a pivotal shift in the corporate landscape of the United States. Effective January 1, 2024, this groundbreaking legislation demands a new level of openness from companies, fundamentally altering how they operate and report.
As a business Ethics speaker and consultant, I’ve talked with several companies since the CTA, which is a significant change in the fight against money laundering and illicit financial activities. It compels companies to disclose detailed information about their beneficial owners and corporate applicants. This new law places a significant responsibility on the shoulders of businesses nationwide.
The essence of the CTA lies in its requirement for companies, both domestic and foreign entities doing business in the U.S., to file crucial ownership information with the Financial Crimes Enforcement Network (FinCEN). This includes revealing the identities of individuals who own or control more than 25 percent of the company’s ownership interests or those wielding substantial control over the entity’s affairs. For companies formed or registered to do business after January 1, 2024, the CTA also mandates the disclosure of the individuals responsible for the entity’s formation or registration and those directing or controlling such filings.
The initial compliance phase for entities formed in the first year post-CTA enactment involves submitting the personal information of beneficial owners and corporate applicants to the FinCEN database within 90 days of formation or registration. This period will be shortened to 30 days starting January 1, 2025.
For entities existing prior to the CTA’s effective date, the deadline to furnish this information is January 1, 2025. The required data encompasses names, birth dates, addresses, identification numbers, and copies of identification documents like passports or driver’s licenses.
A critical step for companies is to ascertain whether they fall under any of the 23 exemptions outlined in the CTA and its implementing regulations. Each entity within a corporate structure must be individually assessed to determine eligibility for these exemptions. Notably, many of these exemptions apply to entities already under certain forms of governmental oversight or regulation, such as banks, financial institutions, and publicly traded companies in the U.S.
Among the notable exemptions are:
- Large Operating Companies: Entities with over 20 full-time employees in the U.S., more than $5 million in gross receipts or sales (excluding foreign sources), and a physical office in the U.S.
- Investment Companies or Advisers: Entities registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940.
- Venture Capital Fund Advisers: Investment advisers described in section 203(l) of the Investment Advisers Act of 1940.
- Subsidiaries of Certain Exempt Entities: Subsidiaries of entities exempt from the CTA, except those qualifying as money transmitting businesses, pooled investment vehicles, or entities assisting tax-exempt entities.
- Inactive Entities: Entities inactive since before January 1, 2020, not owned by foreign persons, without ownership changes or transactions over $1,000 in the past 12 months, and holding no assets.
Compliance with the CTA is not optional, and the penalties for willful non-compliance are severe, including civil penalties of up to $500 per day of violation and criminal penalties of up to $10,000 in fines and/or imprisonment for up to two years.
For further details, refer to the fact sheet and the FinCEN’s BOI website.
