The Corporate Transparency Act

The Corporate Transparency Act (CTA) is a landmark regulation aimed at preventing financial crimes like money laundering, tax evasion, and other illicit activities.

This Act introduces new reporting requirements for business entities (like LLCs, Corporations, LPs, etc), significantly impacting how they operate and report the ultimate individuals who own and/or control these entities.

In this article, we break down:

1. WHO is Affected?

2. WHAT Needs to be filed?

3. WHEN information needs to be filed?

4. The PENALTIES for Non-Compliance.
   
   

Who is Affected?

There are 3 types of entities and individuals that need to file certain personal or corporate information.

1. Reporting Companies: All entities that are currently active with a state's Secretary of State, including limited liability companies (LLCs), limited partnerships (LPs), and corporations to name a few.

This includes all entities that were filed in the past, so if you still have an active LLC that has been holding your real estate for the past 20 years, then this Act applies to you.

Interestingly trusts are not covered since they are not registered or filed with any jurisdiction. So your living trust, land trust and asset protection trust are not covered.

There are 23 exemptions but honestly, almost none will apply to the most people.

The closest will be entities that have $5m in revenue and more than 20 full time employees.

The reasoning is that such entities are already under sufficient regulatory scrutiny or provide enough transparency through other means.

I have listed all 23 exemptions at the end if you are interested.

2. Beneficial Owners of the Reporting Companies

These are individuals or companies that either:

(a) own more than 25% of an entity or

(b) have “significant control” over the entity, such as managers, general partners, board of directors, or members of individuals that have a controlling voting interest in the company.

Substantial control is defined broadly as a catch-all to ensure no individual escapes scrutiny.

Generally, it refers to individuals who have significant influence or authority over a company, even if they do not have a large equity stake. This could include those who have the power to make important decisions about the company's operations, policies, or practices.

The Act aims to ensure transparency and accountability by identifying these key individuals who might otherwise remain hidden behind the corporate structure.

3. Applicants: The individuals or entities that file the registration of the business, including legal representatives or online filing services, in addition to the individual who directs that person to file.
   
   

What Needs to be Filed?

For Reporting Companies:

• Company name and any dba (doing business as)
• Company Address
• State of Formation.
• A unique identifying number, typically the Employer Identification Number (EIN).

For Beneficial Owners:

• Legal Name
• Home Address (no PO Boxes or business addresses)
• Date of Birth
• An official identification number (usually driver's license or passport).
• A copy of the identification document.

For Applicants:

Personal information similar to beneficial owners, with the option to use a business address.

When it Needs to be Filed?

Entities Filed Prior to January 1, 2024: December 31, 2024.

New Entities Filed After January 1, 2024: 90 days.

Amendments: Any changes in beneficial ownership or company details must be reported within 30 days of the change.

What the Penalties are for Non-Compliance?

Accidental Non-Compliance: A fine of $500 per day, per incident. Maximum of $10,000 and/or two (2) years in prison.

Intentional Non-Compliance: Can result in fines up to $250,000 and imprisonment of up to five (5) years in prison.

Conclusion

The Corporate Transparency Act is a critical update in U.S. business regulation, necessitating careful attention and adherence from companies.

Understanding who needs to file, what information is required, the filing deadlines, and the consequence of non-compliance is essential for businesses to operate lawfully and avoid severe penalties.

As we move closer to 2024, preparing for these changes is not just advisable; it's imperative for continued business success.

List of 23 Exempted Categories to Corporate Transparency Act

1. Securities reporting issuer: Issuers of securities registered under the Securities Exchange Act of 1934 or required to file supplementary and periodic information under the same act.

2. Governmental authority: Entities established under U.S. laws, an Indian tribe, a state, a political subdivision of a state, or under an interstate compact.

3. Bank: As defined in the Federal Deposit Insurance Act, Investment Company Act of 1940, or Investment Advisers Act of 1940.

4. Credit union: Federal or state credit unions as defined in the Federal Credit Union Act.

5. Depository institution holding company: Bank holding companies as defined in the Bank Holding Company Act of 1956 or savings and loan holding companies.

6. Money services business: Money transmitting businesses registered with FinCEN and other money services businesses.

7. Broker or dealer in securities: Brokers or dealers registered under the Securities Exchange Act of 1934.

8. Securities exchange or clearing agency: Registered under the Securities Exchange Act of 1934.

9. Other Exchange Act registered entity: Entities registered with the SEC under the Securities Exchange Act of 1934, other than those in exemptions 1, 7, or 8.

10. Investment company or investment adviser: Registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940.

11. Venture capital fund adviser: Investment advisers described in the Investment Advisers Act of 1940 and filing specific forms with the SEC.

12. Insurance company: As defined in the Investment Company Act of 1940.

13. State-licensed insurance producer: Authorized insurance producers with an operating presence in the U.S.

14. Commodity Exchange Act registered entity: Entities registered under the Commodity Exchange Act.

15. Accounting firm: Public accounting firms registered in accordance with the Sarbanes-Oxley Act of 2002.

16. Public utility: Regulated public utilities providing telecommunications, electrical power, natural gas, or water and sewer services in the U.S.

17. Financial market utility: Designated by the Financial Stability Oversight Council under the Payment, Clearing, and Settlement Supervision Act of 2010.

18. Pooled investment vehicle: Operated or advised by persons described in exemptions 3, 4, 7, 10, or 11.

19. Tax-exempt entity: Organizations described in Sec. 501(c) of the Internal Revenue Code and exempt from tax.

20. Entity assisting a tax-exempt entity: Operating exclusively to provide financial assistance to tax-exempt entities.

21. Large operating company: Employing more than 20 full-time employees in the U.S., having an operating presence at a physical office in the U.S., and demonstrating more than $5,000,000 in gross receipts or sales.

22. Subsidiary of certain exempt entities: Entities controlled or wholly owned by entities described in the other exemptions.

23. Inactive entity: Entities not engaged in active business and meeting other specific criteria​​.