The Corporate Transparency Act (CTA) mandates that certain businesses share information with the government about who owns them – Beneficial Owners. The rationale is that the information will help law enforcement stop crimes like money laundering and terrorism financing. Instead of sending reports to the IRS, businesses will need to send them to the Financial Crimes Enforcement Network (FinCEN), which is part of the Department of Treasury.

Who Needs to Report?

  • U.S. Entities: This includes corporations, LLCs, or similar groups registered with a state secretary or a similar office.
  • Foreign Entities: These are similar groups formed in another country but registered to do business in the U.S.

Exemptions

There are 23 categories that are exempt, including publicly traded companies, banks, credit unions, and tax-exempt organizations. However, these exemptions are specific, and many of these groups already follow other reporting rules.  Here is a list of exemptions

  1. Securities reporting issuer
  2. Governmental authority
  3. Bank
  4. Credit union
  5. Depository institution holding company
  6. Money services business
  7. Broker or dealer in securities
  8. Securities exchange or clearing agency
  9. Other Exchange Act registered entity
  10. Investment company or investment adviser
  11. Venture capital fund adviser
  12. Insurance company
  13. State-licensed insurance producer
  14. Commodity Exchange Act registered entity
  15. Accounting firm
  16. Public utility
  17. Financial market utility
  18. Pooled investment vehicle
  19. Tax-exempt entity
  20. Entity assisting a tax-exempt entity
  21. Large operating company
  22. Subsidiary of certain exempt entities
  23. Inactive entity

What's a Beneficial Owner?

  • Person or people with control over the company or at least a 25% ownership in a reporting company.  The law contains further explanation/definition.

When to Report?

  • New Entities (from 1/1/24): Report within 30 days (there might be a 90-day extension for entities created in 2024).
  • Existing Entities: Report by 1/1/25.
  • Updates or Corrections: Report within 30 days if there are changes or mistakes.

What Information is Needed?

  • Company details like name, business address, where it was formed, and TIN/EIN.
  • Beneficial owner information, including personal details and ID documents.

What Happens if You Don't Follow the Rules?

Not reporting properly can lead to fines up to $10,000, daily penalties of $500, and jail time for up to two years.

About the Author

Tim Warner has more than thirty (30) years of experience as a Lawyer, Mediator and Arbitrator (in person and online) predominately handling business, commercial and employment matters, while also handling healthcare, consumer, probate and personal injury matters. Tim serves on multiple American Arbitration Association Panels and has been recognized by the National Academy of Distinguished Neutrals.  He previously served as the Chairman of the Cleveland Bar Association’s Litigation and Alternative Dispute Resolution Sections.