Are you In compliance with the Corporate transparency act?

What is the Corporate Transparency Act (CTA)?

In 2021, Congress passed the CTA to combat illegal activities including money laundering and terrorist financing. As a consequence, the CTA requires companies to report three types of information to the Financial Crimes and Enforcement Network (FinCEN) of the U.S. Department of the Treasury.

Reporting Company Information

The first type of information is the reporting company information. A “reporting company” is any company, whether it is domestic or foreign, that is formed by filing a document with the secretary of state (or a similar State office), or an Indian tribe. These reporting companies must report the following information to FinCEN:

• The reporting company’s name, and any trade name or DBAs (if applicable)
• The business street address
• The formation jurisdiction, and
• A “unique business number” (which can be the company’s EIN number from the IRS)

Reporting Company Exemptions

There are 23 types of entities that are exempt from reporting information to FinCEN. The most important exemption is the “large operating companies” exemption. An entity falls into this category if:

• It employs 21 or more employees in the US
• It has more than $5 million in gross receipts or sales in the US, and
• It has a physical office in the US

If a company meets all three requirements, they do not need to report any information to FinCEN. But if a company does not meet all three requirements, they are required to report their information to FinCEN.

When starting out, some companies may think they will meet the three requirements. But since they are unable to prove it at the start, they still must file.

Company Applicant Information

The second type of information is the company applicant information. A company applicant is someone who is responsible for submitting these reports to FinCEN, which includes Corporate Direct. However, FinCEN only requires this information for entities formed after January 1, 2024.

FinCEN requires the following pieces of company applicant information:

• The company applicant’s name
• The company applicant’s birthdate
• A business or residential street address, and
• An unexpired driver’s license or passport (with a document number and an image)

Beneficial Ownership Information

The third type of information is beneficial ownership information. A “beneficial owner” is someone who owns at least 25% of the company, or someone who exercises “substantial control” over the company. The “substantial control” requirement is broad. It can include managers, directors, officers, or anyone else who can make decisions for the company.

Companies must submit the following pieces of beneficial ownership information to FinCEN:

• The beneficial owner’s name
• The beneficial owner’s birthdate
• The beneficial owner’s residential street address, and
• A “unique identifying number” from an unexpired passport or driver’s license (with an image)

When to File

The timing to file these reports depends upon when the reporting company was formed.

• If the reporting company was formed before January 1^st, 2024, they have one year (or until December 31^st, 2024) to report their information to FinCEN.
• If the reporting company was formed between January 1st, 2024 and December 31st, 2024, they have 90 days to report their information to FinCEN.
• If the reporting company was formed after January 1^st, 2025, they only have 30 days to report their information to FinCEN.
• When there is a change in ownership, a new mailing address, or someone discovers an error in a previous report, the reporting company has 30 days to file the corrected reports.

Penalties For Not Filing

The CTA has serious penalties. If you don’t report this information, you can face up to $10,000 in fines and 2 years in jail.