Corporate Transparency Act (CTA) Requires Certain Companies to Report Information on Beneficial Ownership

Practice Areas

By Pooja Srivastava

The Corporate Transparency Act (CTA) is a new United States federal reporting requirement that requires business entities to report beneficial ownership. The CTA will take effect by January 1, 2022. Certain companies are exempt from this new regulation.

How the cta works

Established as part of the National Defense Authorization Act for Fiscal Year 2021, the CTA aims to help with national security efforts by more easily detecting money laundering and banning anonymous shell companies.

All privately held corporations, limited liability companies (LLCs), foreign companies who are registered to do business in the US, and similar entities must comply with the CTA as detailed below.

Entity Formation Date

Deadline to Report Beneficial Ownership to the Financial Crimes Enforcement Network (FinCEN)

On January 1, 2022 or later

At the time of formation.

Before January 1, 2022

Within two years of CTA’s effective date, or by January 1, 2024.

Companies have one year to provide updated information to FinCEN after any significant change in beneficial ownership. There are heavy civil and criminal penalties for noncompliance or providing false or fraudulent information, which include fines of $500 per day, up to a maximum of $10,000, and two years of imprisonment.

what are beneficial owners?

Beneficial owners meet one of the following criteria, whether through contract, understanding, or other arrangements:

  • Has substantial control over a business entity, or
  • Holds at least 25% ownership of the business.

The CTA does not define “substantial control,” but a definition may be forthcoming.

Under the CTA, this definition of beneficial owners excludes employees who have significant control of an entity only through their role as an employee, most creditors, minor children, people who act as nominees on behalf of another person, or individuals whose interest in the business is solely based on inheritance. Additional regulations are still under consideration for reporting and other compliance rules.

which companies are exempt?

Certain entities are exempt from CTA reporting requirements if they meet all the following requirements:

  • Employ more than 20 full-time workers in the United States,
  • Have at least $5 million in annual gross revenue, and
  • Operate at a physical office within the US.

Additional entities are exempt from reporting beneficial ownership to FinCEN, and these include certain financial institutions, insurance companies, investment companies, and more.

Conclusion

Our team will closely watch the development of CTA regulations and guidance and provide updates when they are available. For help understanding your obligations under the CTA or any other case-specific questions, please contact your trusted Chugh CPAs, LLP professional.