What You Need to Know About the Corporate Transparency Act

On January 1, 2024, the Corporate Transparency Act (“CTA”) went into effect. The intent of the CTA is to bring the United States into compliance with international anti-money laundering standards. The CTA requires certain entities to register with the Financial Crimes Enforcement Network bureau of the United States Department of the Treasury (“FinCEN”) and provide FinCEN with certain limited personal information regarding their beneficial owners and company applicants.

CTA Filing Deadlines

The following filing deadlines apply to entities that are required to make filings with FinCEN under the CTA:

Entities formed or registered prior to January 1, 2024 have until December 31, 2024 to make their CTA filing;
Entities formed or registered during 2024 have ninety (90) days from their date of formation or registration to make their CTA filing; and
Entities formed on or after January 1, 2025 will have thirty (30) days from their date of formation or registration to make their CTA filing.

Entities Required to Report and Exempt Entities

Entities that come under the purview of the CTA include limited liability companies, corporations, and any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Native American tribe, including statutory trusts (but not common law trusts) (“Reporting Companies”). Although broadly inclusive, there are twenty-three (23) categories of entities that are exempt from reporting altogether. Some notable exempt entities include:

entities with over twenty (20) full-time U.S. employees, $5 million in gross revenue, and a physical U.S. office;
financial services institutions that are already regulated by the Securities and Exchange Commission, Federal Deposit Insurance Corporation, or Comptroller of the Currency;
subsidiaries that are 100% owned by exempt entities; and
churches, charities, 501(c) nonprofit entities, and charitable trusts.

Entities Subject to Reporting

Reporting Companies must report certain limited information on the Company itself, each “Company Applicant”, and each “Beneficial Owner”.

A Company Applicant is one who files, or directs or controls the filing of, an application to form the entity or enable it to do business in the U.S. (which could be the outside lawyer or paralegal that causes the filing of an application for a new entity). Reporting Companies formed prior to January 1, 2024, do not need to report information about their Company Applicant(s).

A Beneficial Owner is each individual who exercises “Substantial Control” over an entity or owns or controls twenty-five percent (25%) or more of the ownership interest in an entity (please note there are special rules for trusts).

Among those who exercise Substantial Control are:

senior officers of the reporting company;
individuals who can appoint or remove senior officers or a majority of the board of directors of the reporting company;
individuals who direct, determine, or have substantial influence over important matters of the reporting company; and
individuals who have any other form of substantial control over the reporting company.

The definition of Beneficial Owner is intentionally broad, but does contain a few exemptions from individuals having to provide their personal information in respect of a Reporting Company, including for:

minors;
individuals acting as nominees, agents, intermediaries, or custodians on behalf of another individual;
individuals acting as employees (excluding senior officers);
individuals whose interest in the reporting entities are through rights of inheritance; and
creditors.

Reporting Information

A Reporting Company must report the following information about itself:

its full legal name and any d/b/a names;
the street address of its principal place of business;
for a foreign Reporting Company, the street address of the primary location in the U.S where it conducts business;
for a domestic Reporting Company, the State or Tribal jurisdiction where it was formed;
for a foreign Reporting Company, the State or Tribal jurisdiction where it was first registered to do business; and
the Tax Identification Number (TIN) of a domestic Reporting Company or a foreign TIN for a foreign Reporting Company without a U.S. TIN.

Besides reporting information about itself, Reporting Entities must also report the following information about each Beneficial Owner and Company Applicant:

full legal name;
dates of birth;
current residential or (for Company Applicants only) business street address;
unique identifying numbers from an acceptable identification document, such as passports and drivers’ licenses; and
a copy of the identification document.

Beneficial Owners and Company Applicants also have the option to acquire a FinCEN identification number (a “FinCEN ID”). To acquire a FinCEN ID, Beneficial Owners and Company Applicants have to follow the appropriate prompts on the fincen.gov/boi website and provide the above listed information directly to FinCEN. After acquiring a FinCEN ID, Beneficial Owners and Company Applicants are able to provide their FinCEN ID to Reporting Companies in lieu of the required reporting information.

All reporting is done electronically at fincen.gov/boi.

Reporting Entities have a continuing obligation to update information about themselves and their Beneficial Owners, but not about the Company Applicants. Changes to Beneficial Ownership and exemption status must be reported within thirty (30) days of such changes. If a Beneficial Owner or Company Applicant has a FinCEN ID, then the Beneficial Owner or Company Applicant is required to update any changes to their information directly with FinCEN within thirty (30) days of such change.

Penalties for Non-Compliance

Willfully providing false information, or willfully failing to update information, to FinCEN can result in civil penalties of up to $500 per day and criminal penalties of up to two (2) years of imprisonment and fines of up to $10,000. However, reporting entities and individuals with FinCEN IDs have a thirty (30) day window to correct inaccurate information previously filed after discovering the inaccuracy.

Confidentiality of Information

FinCEN, and those with access to personal information submitted to FinCEN, have an obligation under the statute to keep such information confidential. FinCEN may only disclose such personal information in very limited circumstances to a statutorily defined group of domestic and international governmental authorities and financial institutions. Further, knowingly disclosing or using such personal information without authorization can result in civil fines of up to $500 per day and criminal penalties of up to ten (10) years of imprisonment and fines of up to $500,000.

Challenges to CTA

On March 1, 2024, the United States District Court for the Northern District of Alabama, in a memorandum opinion, ruled that the CTA was unconstitutional because it exceeded the powers granted to Congress under the Constitution (National Small Business United, d/b/a the National Small Business Association v. Yellen, No. 5:22-cv-1448-LCB (N.D. Ala. 2022)). Although this case creates uncertainty regarding the future of the CTA, as of now the court order only enjoins FinCEN from enforcing the CTA against the plaintiffs in that case. In addition, the judgement is likely to be appealed by the government, and the results of that appeal cannot be predicted. At this time, we believe that it is still appropriate for companies and their advisors to comply with the reporting requirements of the CTA.

If you have any questions regarding the CTA or guidance please contact your Smith, Gambrell & Russell, LLP relationship attorney or reach out to the following attorneys in each of our offices, Tom Hong and Brett Lockwood (Atlanta/Austin/Charlotte), Eric Breitman (New York/Washington D.C.), Ken Crane (Chicago), Adam Buss (Jacksonville/Miami/Tampa), Peter Rho (Los Angeles), Ben Graham-Evans (London), Michael Kraus (Atlanta – German Practice) and Stefan Buske (Munich).