The Corporate Transparency Act (CTA) expands the information many businesses must provide to the federal government. It aims to improve anti-money laundering law enforcement. The law was enacted on January 1, 2021, but it won’t go into effect until its regulations are finalized. Recently, FinCEN confirmed that the beneficial ownership reporting rule will take effect starting on January 1, 2024.
What’s the CTA?
Congress passed the National Defense Authorization Act for Fiscal Year 2021, which contained the Anti-Money Laundering Act of 2020 (AMLA). It introduced reforms to anti-money laundering and counter-terrorism financing laws. Money laundering is handling financial assets produced by illegal activities to make it appear they weren’t earned through illegal activity.
Reforms include expanding the Financial Crimes Enforcement Network’s (FinCEN) regulatory authority, such as disclosure of the company’s beneficial ownership. This should give law enforcement more data for investigations and others working to prevent illegal money laundering.
Part of the AMLA is the Corporate Transparency Act (CTA). It requires:
- Some limited liability companies and corporations to disclose beneficial owner information to FinCEN and update it within a year of any changes
- FinCEN to create a non-public registry that tracks beneficial owners of these companies. Law enforcement and financial institutions conducting due diligence searches will use the registry
- FinCEN to issue regulations on beneficial ownership disclosures within a year of its enactment
A “beneficial owner” is a party with direct or indirect “substantial control” over a business or owns or controls at least a quarter of such an entity. FinCEN’s final regulations should define “substantial control.”
When Must Businesses Submit Information?
FinCEN’s future regulations should state when companies must file beneficial ownership information. This will vary depending on when a company forms, relative to the regulation’s effective date.
If proposed regulations are enacted, new companies and those that lose their exemption won’t have much time. Existing companies will have a lot of time to file:
- A company formed or registered on or after the regulations’ effective date needs to file a report within two weeks of the date the company was formed
- Those started before the effective date of regulations would be required to file reports no later than a year after the regulation’s effective date
- If a company exempt from reporting makes changes, so it falls under the regulation must file a report within 30 days after the date on which it lost its exemption
These deadlines may be different in the final regulations.
Who Must File Reports?
Domestic or foreign companies may need to comply with the CTA. Domestic entities include corporations, limited liability companies, and any entities created by filing documents with a secretary of state or similar office under Indian tribe law. This would cover:
- Limited partnerships
- Limited liability partnerships
- Limited liability limited partnerships
- Business trusts
- Any entity with limited liability for its owners due to state or tribal charter
Foreign entities registered to do business by filing with a secretary of state or similar office in any state or tribal jurisdiction are also subject to reporting requirements.
This casts a very wide net, but there will be many exemptions. The proposed regulations list 22 types of exempt entities. Most are already subject to state or federal supervision, including those reporting to banking, insurance, securities, and investment banking regulators.
Also exempt would be:
- Public companies issuing securities under § 12 of the Securities Exchange Act of 1934
- Governmental authorities
- Venture-capital fund advisors
- Public utilities
- Pooled investment vehicles
- Tax-exempt entities
- Entities assisting tax-exempt entities
Proposed exemptions would also cover “large operating companies” which:
- Employ more than 20 people full-time in the US,
- Have an operating presence in a physical office in the US
- Filed a federal information or income tax return in the prior year stating they had more than $5 million in gross sales or receipts, not counting those from outside the US
Some inactive entities will be exempt. They’ll be considered inactive if they existed on or before January 1, 2020, and:
- They’re not actively engaged in business
- A foreign person does not own them
- Their ownership hasn’t changed in the preceding 12 months
- They haven’t received or sent in the prior 12-month period more than $1,000 directly or through a financial account
- They don’t hold any assets
An entity may be exempt but lose that exemption if its situation changes and they no longer qualify.
How CTA Filer Can Help You and Your Company
Why spend your time reviewing hundreds of pages of the CTA, related federal statutes, and regulations when we can do it for you? We can help you navigate confusing policies and simplify the reporting process so you can focus on running your business:
- We offer easy, online filing with step-by-step instructions
- Our prices are far more affordable than what your accountant or attorney would charge
- We will reduce your paperwork load
- Our annual monitoring will help you stay in compliance to prevent financial penalties and up to two years in prison for not filing required information on time
If you have questions about the CTA or want to stay up to date on all the upcoming changes, make sure to visit our homepage and sign up for our email list.
