Understanding the Corporate Transparency Act: What Every Business Owner Needs to Know

The Corporate Transparency Act

We are writing to remind you of the reporting requirements mandated by the Corporate Transparency Act (CTA) that went into effect on January 1, 2024.

A component of the Anti-Money Laundering Act of 2020, this law requires that information related to U.S. entities and some non-U.S. entities be reported to the Financial Crimes Enforcement Network (FinCEN), including information related to both the beneficial owners and controllers of the entity. FinCEN is a bureau of the U.S. Department of Treasury with the stated mission of safeguarding the financial system from illicit use and to combat money laundering and terrorist financing among other unlawful financial activities.

This law requires the reporting of ownership of U.S. entities and imposes penalties for both willful and negligent non-reporting. These penalties are set at $591 per day up to a maximum penalty of $10,000, two years imprisonment, or both.

Which entities are required to report?

An entity that was formed by the filing of organizational documents with a governmental entity, such as a Secretary of State, unless the entity meets one of the 23 exemptions to the reporting requirements, is required to file a report. For Arizona this includes any corporation or limited liability company formed by filing organizational documents with the Arizona Corporation Commission. We have enclosed a list of the 23 exemptions to the reporting requirements for your review.

What information must be provided?

There are two separate categories of information that must be reported to FinCEN.

The first relates to the reporting entity itself. A reporting entity must provide the following information: (1) the full legal name of the entity; (2) the trade name or doing business name “DBA”; (3) the current street address of the principal place of business; (4) the jurisdiction of formation; and (5) the taxpayer identification number, or EIN.

The second relates to the beneficial owners of the entity. A beneficial owner of the entity must provide the following information: (1) their full legal name; (2) their dare of birth; (3) their current residential street address; and (4) a copy of one of the following: (a) driver’s license; (b) U.S. Passport; (c) state or local identification document; or (d) a foreign passport if the individual does not have an identification document listed in (a), (b), or (c).

It is important to understand that the term “beneficial owners” includes individuals who may have no ownership in the entity itself. The CTA defines a beneficial owner as the following: an individual who, directly or indirectly, exercises substantial control over the reporting entity or owns or controls at least 25% of the ownership interests of the reporting entity. Examples of substantial control found within the CTA include: (1) a senior officer of the entity; (2) an individual having authority over the senior officers or a majority of the board of directors; (3) an individual that has significant influence over the important decisions of the reporting entity; or (4) an individual that has any other type of significant control over the reporting entity.

Some examples of “important decisions” include: (1) the ability to influence the direction of the reporting entity; (2) the sale, lease, mortgage, or transfer of principal assets; (3) the ability to influence major expenditures or investments, the issuance of equity, obtaining any significant debt, or the approval of the operating budget of the reporting entity.

When must the reports be filed?

The reports must be filed by the dates set in the CTA and vary based upon when the reporting entity was formed.

A reporting entity created or registered prior to January 1, 2024, must file their reports by January 1, 2025.

A reporting entity created or registered after January 1, 2024, but prior to January 1, 2025 must file their reports within 90 calendar days after receiving notice of the entity’s creation or registration.

A reporting entity created or registered after January 1, 2025, must file their reports within 30 calendar days after receiving notice of the entity’s creation or registration.

Additionally, within 30 calendar days of a change to the originally filed report, an updated report must be filed with FinCEN. A change in ownership, beneficial owners, residential addresses of owners and beneficial owners, or a change in the identifying documents originally submitted will warrant the filing of an updated report with FinCEN.

Closing comments:

Please review the contents of this letter and the enclosed exemptions to the reporting requirements carefully. You will need to determine if your company is a reporting entity as defined under the CTA. If your company is a reporting entity then your attorney can assist in the filing of the required reports, or you may choose to file them directly with FinCEN using their online filing system.

As there are unresolved questions as to whether these filings constitute the unlicensed practice of law, Keegan Linscott & Associates are unable to submit these filings on your behalf.

Additional Resources:

The following links may be helpful in determining whether your company is a reporting entity and with the filing of your reports:

FinCEN ID

Beneficial Ownership Information Reporting Website

Beneficial Ownership Information Small Entity Compliance Guide

Beneficial Ownership Information Frequently Asked Questions

Corporate Transparency Act Exemptions

11.      A public company that has securities registered with the Securities and Exchange Commission (SEC) or that is required to file reports with the SEC.

22.      A governmental agency established under the laws of the United States, an Indian Tribe, a State, a political subdivision of a State, or under an interstate compact.

33.      A bank.

44.      A federal or state credit union.

55.      A bank holding company.

66.      A money-transmitting business registered with FinCEN.

77.      Any entity registered with the SEC, including a clearing agency, investment company or investment adviser.

88.      A broker or dealer in securities.

99.      An insurance company.

110.  An entity registered under the Commodity Exchange Act.

111.  An accounting firm registered under the Sarbanes-Oxley Act.

112.  A registered public utility.

113.  A designated market utility.

114.  A pooled investment vehicle that is operated or advised by an entity exempt under the CTA.

115.  A federally tax-exempt entity.

116.  An entity that assists a tax-exempt entity.

117.  A large operating company, meaning an entity that employs more than 20 employees on a full-time basis in the United States; filed in the previous year federal income tax returns in the United States demonstrating more than $5 million in gross receipts or sales in the aggregate, including the receipts or sales of (a) other entities owned by the entity; and (b) other entities through which the entity operates; and has an operating presence at a physical office within the United States.

118.  A subsidiary of certain exempt entities.

119.  A securities exchange or clearing agency.

220.  Other exchange act registered entities.

221.  A state licensed insurance producer.

222.  A venture capital fund advisor.

223.  An inactive entity that has existed for more than a year, is not engaged in any business, is not owned, directly or indirectly, by a foreign person, has had no change in ownership in the previous 12 months, has not sent or received more than $1,000 in the last 12 months, and owns no assets.