FAQs: Corporate Transparency Act, beneficial ownership information rules
December 6, 2024
The Corporate Transparency Act includes a reporting requirement for beneficial ownership information that impacts millions of businesses. Below are frequently asked questions (FAQs) on the rule and a recent court ruling impacting it.
What’s the purpose of the Corporate Transparency Act?
The Corporate Transparency Act (CTA) was passed by Congress on a bipartisan basis in 2021.
“This law creates a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures,” reports the federal Financial Crimes Enforcement Network (FinCEN). The agency said it will help prevent drug traffickers, fraudsters, corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States.
How many businesses are affected by this new filing requirement?
More than 30 million small businesses are required to report their beneficial owners (i.e., persons who have substantial control or own at least a 25% ownership interest) to the Financial Crimes Enforcement Network. The new requirement went into effect on January 1, 2024.
Under the CTA, which businesses are required to report beneficial ownership information?
An entity must file a report if it was created in the U.S. by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe. (An “entity” includes a corporation, a limited liability company (LLC) or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state, regardless of business activity or lack thereof.) Additionally, foreign companies registered to do business in any U.S. state or Indian tribe must file.
There are 23 categories of entities that are exempt. They include, for example, publicly traded companies meeting specified requirements. (The full list of exemptions is included in this document.)
Most notably, the “Large Operating Company” exemption is met if a company has ALL of the following:
- More than 20 full-time employees in the U.S.
- Operating presence at a physical office within the U.S.
- More than $5 million in gross revenue or sales from sources inside the U.S. on the prior year’s federal income tax return
What filing deadlines were established under the CTA?
The deadlines to report beneficial ownership are dependent on when the entity was created.
- If the business existed as of January 1, 2024: Beneficial ownership information must be filed by January 1, 2025.
- If the business is created after January 1, 2024, but before January 1, 2025: Beneficial ownership information must be filed within 90 days.
- If the business is created on or after January 2025: Beneficial information must be filed within 30 days.
Once a business has submitted its initial filing, companies have 30 days after any change to previously filed information to report the change, such as beneficial owner changes, legal name or physical address changes, expiration dates, etc.
Under the CTA, what were the potential penalties for noncompliance?
There are civil penalties for noncompliance of up to $500 per day.
What are the implications of the recent federal court ruling in Texas?
A federal judge in Texas issued a ruling that temporarily suspends enforcement of the Corporate Transparency Act nationally.
The judge’s ruling is not a repeal of this requirement, but rather, it’s a temporary pause on enforcement.
What’s next in the court case?
Two days after the initial ruling, the U.S. Department of Justice filed a notice of appeal. The department also seeks a stay of the injunction issued by the Texas judge.
While the outcome of any appeal is uncertain, the CTA’s purpose as a national defense tool and its resilience in previous legal challenges suggest that a repeal is unlikely.