You know everything there is to know about the Corporate Transparency Act and have all your beneficial ownership information ready to submit to the United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) in January, right?
What do you mean you have never heard of the CTA? Don’t be alarmed — a lot of business owners haven’t, even if the new law applies to them.
A CTA Overview
What exactly is the Corporate Transparency Act (CTA)? It is one of the widest-reaching federal business entity laws ever enacted and, according to FinCEN, is designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system. The agency believes the rule will help stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers and those who would use anonymous shell companies, to hide their illicit proceeds.
The CTA, which is scheduled to go into effect on January 1, 2024 — less than one month from today — mandates through its Beneficial Ownership Information (BOI) Reporting Rule that most corporations, limited liability companies (LLCs) and other entities created in or registered to do business in the U.S. report information about their beneficial owners to FinCEN. The BOI must be filed through an online interface called the Beneficial Ownership Secure System (BOSS).
Law enforcement agencies in the U.S. and internationally will be the only entities with access to the data in BOSS. Required BOI includes the following:
- Full legal name
- Date of birth
- Current residential or commercial street address
- A unique identifying number from the individual’s acceptable government-issued identification (i.e., state ID, driver’s license, passport) and an image of that ID
To Whom Do the TCA Reporting Requirements Apply?
CTA reporting requirements pertain to two categories of individuals: the beneficial owners of the entity and individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. A beneficial owner is defined as any individual who directly or indirectly exercises substantial control over a reporting company or company or owns or controls at least 25 percent of a reporting company’s ownership interests.
To what does substantial control refer? According to FinCEN, it is an individual who:
- Serves as a senior officer of the company
- Has authority over the appointment or removal of any senior officer or a majority of the board
- Directs, determines or has substantial influence over important decisions made by the reporting company
Under the CTA, even senior officers and other individuals with control over the company who have no equity interest in the business are considered beneficial owners.
What Businesses Will the Corporate Transparency Act Impact?
An estimated 32.6 million current businesses are expected to be affected by the CTA in 2024. And, roughly five million newly formed businesses will be impacted by the law each subsequent year.
The Corporate Transparency Act affects privately held and nonprofit businesses but focuses more on small and medium-sized companies that generate less than $5 million in annual revenue and have fewer than 21 full-time employees (FTEs). Businesses required to comply with CTA reporting rules are called reporting companies. The two types of reporting companies include domestic businesses and foreign ones.
Domestic Reporting Companies
Domestic reporting companies consist of corporations, LLCs and any other entities created by the filing of a document with a secretary of state, Indian tribal office or any similar office in the U.S. A domestic entity such as a statutory trust, business trust or foundation is a reporting company only if it was created by the filing of a document with a secretary of state or similar office.
Foreign Reporting Companies
Conversely, foreign reporting companies are entities such as corporations and LLCs that were formed under the law of a foreign country but have registered to do business in the U.S. by the filing of a document with a secretary of state or any similar office. The tricky part is that not all states require foreign entities to register this way to do business in their state.
As these definitions indicate, a key factor in determining if your company will have to report BOI to comply with the CTA is whether you had to file a document with your state’s secretary of state or a similar office to create your company or, for foreign companies, register it to do business in the U.S.
Are Any U.S. Businesses Exempt from the CTA?
Most commonly exempted from the CTA reporting rules are heavily regulated businesses, sole proprietorships, unincorporated associations, tax-exempt entities, some general partnerships and large operating companies. What exactly is a large operating company? It is one that meets all three of the following criteria:
- The business must have a commercial, physical street address in the United States.
- The business must have 21 or more full-time employees (excluding full-time equivalent employees, part-time employees, independent contractors and leased employees).
- The business must have filed a prior year’s federal income tax return demonstrating more than $5 million in annual, U.S.-only gross receipts or sales.
FinCEN offers an online list of the 23 types of businesses exempt from the CTA’s BOI reporting requirements. These 23 exemptions are:
| Securities reporting issuers | Securities brokers or dealers | State-licensed insurance producers | Tax-exempt entities |
| Governmental authorities | Securities exchange or clearing agencies | Commodity Exchange Act registered entities | Entities assisting a tax-exempt entity |
| Banks | Other Exchange Act registered entities | Accounting firms | Large operating companies |
| Credit unions | Investment companies or advisers | Public utilities | Subsidiaries of certain exempt entities |
| Depository institution holding companies | Venture capital fund advisers | Financial market utilities | Inactive entities |
| Money services businesses | Insurance companies | Pooled investment vehicles |
Conclusion
The Reporting Rules of the Corporate Transparency Act are somewhat hard to understand. Plus, there is not a lot of information about it because it’s a new law. That’s why it is a good idea to partner with professionals like the multidisciplinary team at StenTam. We will not only discuss with you what CTA means for your business but also collaborate with you to ensure your BOI reporting is accurate and submitted promptly. Contact us today to take the next step in CTA compliance.
