The Corporate Transparency Act (CTA), which went into effect on January 1, 2024, is far-reaching and may impact more than 30,000,000 private businesses. Here, we cover the key facts of the CTA and how to navigate it to best prepare you for the year ahead.

What is the CTA?

The CTA requires certain reporting companies to report the personal information of all beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This legislation was enacted under the 2021 National Defense Authorization Act and stems from legislative, policy, and international pressures to increase transparency and enhance efforts to combat money laundering and terrorism.

Put simply, the CTA functions as a comprehensive business ownership reporting regime that requires most private companies to disclose the personal information of who owns and/or controls the company. Under the CTA, reporting companies must provide FinCEN with information about the entities and identify all company applicants and beneficial owners.

A reporting company is an entity created by filing a document with the secretary of state or similar office. The CTA will apply to both domestic and foreign reporting companies.

• Domestic Reporting Companies are corporations, LLCs, business statutory trusts, or other similar entities created within the U.S.
• Foreign Reporting Companies are entities formed under a foreign country’s law that are registered to do business within the U.S.

The company applicant is the individual who directly files the document creating the reporting company, or who is primarily responsible for directing the filing.¹

Beneficial owners are defined as any individual who either directly or indirectly:

1. Owns or controls at least 25% of the ownership interest in a reporting company; or
2. Exercises substantial control over the reporting company

It’s essential to perform due diligence if you think you or someone you know may qualify as a beneficial owner.

Beneficial Owners and Trusts

While a trust itself is not a reporting company, many people involved in trust structures, including trustees, advisers, settlors and beneficiaries will be considered beneficial owners under certain circumstances.

For example, where a trust owns 25% or more of a reporting company, the following individuals are considered beneficial owners:

• All trustees, advisers or people with the ability to make investment decisions or to control the disposition of the reporting company
• A settlor of a revocable trust
• A settlor of an irrevocable trust where the settlor has the right to substitute assets (a power that is commonly given to settlors to make a trust a “grantor trust”)
• A beneficiary who is the only person with the right to receive distributions of income and principal
• A beneficiary who has the right to demand or withdraw substantially all of the assets

Moreoever, regardless of the trust’s percentage of ownership, all fiduciaries or people who exercise substantial control over or make important decisions about the reporting company will be considered beneficial owners.

What are the reporting deadlines?

The obligation to report beneficial ownership began on January 1, 2024. The reporting deadlines to submit beneficial ownership information (BOI) to FinCEN differ depending on when the entity was created:

• Entities created prior to January 1, 2024 have until January 1, 2025. These entities do not need to provide information on company applicants.
• Entities created on or after January 1, 2024 and before January 1, 2025, have 90 days.
• Entities created or registered on or after January 1, 2025 have 30 days from actual or public notice the company’s registration is effective.

Exemptions

There are a total of 23 categories of exempt entities, most of which are already subject to thorough federal and state regulation. Exemptions include governmental entities, publicly traded companies, insurance companies, registered investment companies, banks, credit unions, and other financial institutions, tax-exempt organizations (e.g., registered charitable organizations), or a large operating company. The latter is defined as an entity that employs more than 20 full-time workers, has a physical presence in the U.S., and has reported more than $5 million gross receipt sales on the prior year’s tax return.

Taking Action

To ensure preparedness for the CTA, consider the following steps:

• Inventory your entities: Do you need these entities? Do you anticipate adding and/or needing more entities?
• If the CTA applies to you, log onto FinCEN and submit all necessary info within the deadlines. The report will require the company’s name, address, and EIN, as well as the name, residential street address, DOB, and photo ID of each beneficial owner (and company applicant for entities created after January 1, 2024).

A full list of exemptions and reporting requirements can be found on FinCEN.gov. For more information on how the CTA might affect you, reach out to your relationship manager.