The Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, represents a significant shift in Corporate and Business Law in the United Staes. As of January 1, 2024, businesses in the United States are required to disclose their ownership information to the federal government.

Understanding what constitutes a Reporting Company under the CTA is crucial for businesses, legal professionals, and compliance officers to comply with the CTA and FinCEN’s Beneficial Information Report (BOIR). This article will delve into the specifics of what defines a Reporting Company, the requirements imposed by the CTA, and the implications for various types of businesses.

Under the CTA, a Reporting Company is generally defined as any corporation, limited liability company (LLC), or similar entity that is either created by the filing of a document with a secretary of state or a similar office under the law of a state or Indian tribe or formed under the law of a foreign country and registered to do business in the United States. This broad definition encompasses a wide range of entities, ensuring that most businesses operating within the U.S. fall under the reporting requirements of the CTA.

While the definition of a Reporting Company is broad, the CTA outlines several exemptions to avoid unnecessary regulatory burdens on certain entities. Key exemptions include:

1. Large Operating Companies: Companies that employ more than 20 full-time employees in the U.S., have an operating presence at a physical office within the U.S., and, most importantly for this exemption, have filed a federal income tax or information return in the previous year demonstrating more than $5 million in gross receipts or sales.
2. Regulated Entities: Entities already subject to substantial federal and state regulation, such as banks, credit unions, broker-dealers, investment advisers, insurance companies, and public accounting firms.
3. Inactive Entities: Entities that have been in existence for over a year, are not engaged in active business, are not owned by a foreign person, have not experienced any change in ownership in the preceding year, and do not hold any assets.
4. Certain Nonprofit Organizations: Entities described in Section 501(c) of the Internal Revenue Code, such as charities and religious organizations.

These exemptions recognize that certain entities either already provide beneficial ownership information through other regulatory frameworks or pose a lower risk for money laundering and other illicit activities.

For entities that qualify as Reporting Companies, the CTA mandates the disclosure of specific beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This includes:

• Identifying Information: Full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document (e.g., passport, driver's license).
• Beneficial Owners: Defined as individuals who exercise substantial control over the company or own or control at least 25% of the ownership interests of the company.

The purpose of these requirements is to create a centralized database of beneficial ownership information, which can be accessed by law enforcement agencies and other authorized entities to combat money laundering, terrorist financing, and other financial crimes.

The CTA’s requirements have significant implications for businesses across the United States. Compliance with the CTA involves not only the initial disclosure of beneficial ownership information but also ongoing updates to FinCEN within a specified timeframe if there are changes in the reported information. Non-compliance can result in substantial penalties, including fines and imprisonment.

For businesses, this means implementing robust internal processes to track beneficial ownership and ensure timely and accurate reporting. Legal and compliance teams must stay abreast of the CTA’s requirements and any updates or guidance issued by FinCEN to mitigate risks and ensure compliance.

The Corporate Transparency Act represents a landmark effort to increase transparency in corporate ownership and combat financial crimes. By understanding the definition and requirements of a Reporting Company under the CTA, businesses can better navigate the complexities of corporate compliance in the United States.

As the implementation of the CTA progresses, it will be essential for businesses to adapt and maintain vigilant compliance practices to meet the new regulatory demands.

Della Torre Law PLLC