by Zach Wallin
Overview of the Corporate Transparency Act (CTA)
The Corporate Transparency Act (CTA) is an anti-money laundering law that establishes beneficial ownership information reporting requirements and requires the United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) to implement the CTA. The CTA requires all non-exempt companies formed or registered in the United States to report certain company and beneficial ownership information to FinCEN or face potential penalties of up to $10,000.
Court Rulings on the CTA
On December 3, 2024, a Federal District Court in Texas ruled that enforcement of the CTA and its implementing regulations was unconstitutional. As of the publishing of this article, the 5th Circuit Court of Appeals has upheld the lower court’s ruling, and as a result, no filings under the CTA are currently required by law, and companies do not need to report their beneficial ownership information. This current status is subject to change, however, and because of that, we are providing the information below to give you the necessary information when and if it is needed.
Determining Reporting Requirements
If the requirement to file a Beneficial Ownership Information Report (BOIR) is reinstated, each business owner will need to determine (1) if it is a reporting company, and (2) what information it needs to collect and report to FinCEN. A reporting company is any company formed in the United States or any foreign company that registers to do business in the United States unless it comes within the scope of an exemption. There are 23 categories of exemptions, and each reporting company should determine if an exemption applies to its particular situation.
Identifying Beneficial Owners
Once a company determines it is required to report to FinCEN under the CTA, then the beneficial owners must be identified. An individual can be a beneficial owner by either or both of the following: (i) having an ownership interest in a reporting company or (ii) the exercise of substantial control over a reporting company. An ownership interest is defined as an individual who owns or controls at least 25% of the ownership interests of a reporting company. Individuals who directly or indirectly exercises substantial control over a reporting company are potentially senior officers of the company (President, CEO, CFO, General Counsel), an individual who has authority to unilaterally appoint or remove any such senior officer or a majority of the board of directors of the reporting company, the individual directs, determines or has substantial influence over important decisions made by the reporting company (regarding business, finances, or structure), or the individual has any other form of substantial control over the reporting company.
It is important to note that beneficial owners can only be individuals. Another entity cannot be a beneficial owner of a reporting company. FinCEN’s view is that every reporting company must have at least one beneficial owner.
Reporting Process and Requirements
Reporting companies need to gather all applicable information (Company information, Beneficial Owner information), complete the BOIR via pdf or the online portal at https://boiefiling.fincen.gov/, and Submit the BOIR to FinCEN by January 13, 2025.
Once the BOIR is submitted, there is no continued filing requirement if the information remains the same. A reporting company will only need to update its BOIR if/when the information submitted changes.
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Senior Director of Legal Operations at GoDocs
Compliance with Corporate Transparency Act
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