Note: The summary below includes information about the Corporate Transparency Act. On December 3, 2014, a US District Court in Texas issued a preliminary injunction that prohibits the US federal government from enforcing the CTA. As the (currently unenforceable) January 1, 2025 filing deadline approaches, the ultimate enforceability of this requirement faces continued uncertainty, and online filing remains available at https://boiefiling.fincen.gov/.
The description below was written before the injunction was issued and is provided here for reference.
The United States Corporate Transparency Act (the “CTA”) became effective at the start of 2024. Under the CTA, your company may be required to report its “beneficial owners” to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Treasury Department charged with protecting the US financial system from illicit use, fighting money laundering and promoting national security. Failure to report risks significant fines and penalties for both companies and for their beneficial owners.
The CTA requires non-exempt existing companies to file a report with FinCEN before the end of the 2024 calendar year and requires companies that are newly created or registered to file a more detailed report within 90 days after the company is first organized or registered in the US. The CTA also requires companies to update these filings within 30 days of any change in previously filed information.
The CTA only applies to organizations that either(a) are formed by making a filing with a state’s Secretary of State (or other office charged with forming entities) or (b) are foreign companies that have registered to do business in the United States by making a filing with a state Secretary of State (or other office). So, the CTA does not apply to sole proprietorships, general partnerships or (depending on state) unincorporated nonprofit associations.
The CTA contains 23 exemptions for various types of companies. Most of these exemptions are for companies which are already subject to a high amount of regulation, such as public companies, banks, insurance companies, other types of financial firms and utilities. There are also exemptions for certain types of entities where either Congress or FinCEN believed the burden of reporting would be inappropriate or unnecessary. These include tax-exempt entities, including most charities, and certain inactive entities. Importantly, The CTA also has an exemption for larger companies who meet certain employment and income thresholds and which also have operating offices in the U.S.
We have answered some common questions about the CTA below. Please understand that these questions and answers are general in nature and do not include all details of the CTA.
If you would like our firm’s assistance with how the CTA affects your company, please contact one of our business attorneys. Please note: your company will need to agree to additional terms of engagement before our firm assists you with the CTA.
Does my company need to file a report?
If you are a smaller for-profit company organized as a corporation or a limited liability company and are not an investment advisor or an insurance agency, then, yes, you probably need to file a report. How small? If your company’s gross receipts are less than $5,000,000 per year or you have fewer than 20 full-time employees, or you don’t have an office address in the U.S. dedicated to your company, then you will probably need to file a report. The $5,000,000 threshold is based on the previous year’s tax return.
Our company is organized outside the United States. Do we need to file a report?
If you are qualified in any US state as a “foreign entity,” then the CTA applies to you and you will have to file a report unless an exemption applies. Typically, if you have fewer than 20 full-time employees in the US or receive less than $5M in gross receipts per year from US sources, then you probably need to file a report. Again, the $5M threshold is based on the previous year’s tax return.
Can you tell me more about the Large Operating Company exemption?
Yes. The “Large Operating Company” exemption applies if the company:
- employs at least 20 full-time employees (working at least 30 hours per week) in the United States;
- regularly conducts its business as a physical office in the U.S. that it does not share with any other unaffiliated entity; and
- filed a US federal tax return in the prior year showing more than $5M in gross receipts or sales arising from U.S. sources.
What about our subsidiaries? Do they need to report?
If the subsidiary is controlled or owned entirely by companies that are, themselves, exempt, then (with a few rare exceptions) the subsidiary does not need to report. If, however, any portion of the subsidiary’s ownership interests are held by an individual or by a company that is not itself exempt, then the subsidiary must file a report unless the subsidiary itself is exempt.
We are a non-profit. Do we need to file?
In general, no. Most non-profits, including 501(c)(3) organizations, are exempt. Many homeowners associations, condo associations and the like are recognized as tax-exempt 501(c)(4) organizations, and are exempt.
Our company has not been active in several years. Do we need to file?
There is a limited exemption for inactive businesses. Importantly, a business can only take advantage of this exemption of it does not hold any assets or ownership interests in another entity. Otherwise, this exemption requires that the company:
- Was first form before 2020
- Is not engaged in any active business
- Is owned entirely (both directly and indirectly) by US persons
- has not sent or received more than $1000 in the previous 12 months
What other companies are exempt from having to file CTA reports?
The CTA does not apply to US companies that were/are not organized by making a filing with a US state or tribal government. Correspondingly, sole proprietorships and general partnerships do not need to file reports. The CTA also does not apply to any foreign company that has not qualified to do business by making a filing with a US state or tribal government.
In addition, the CTA contains 23 exemptions for various types of business. The broadest of these exemptions is the “Large Operating Company” exemption described above. The CTA also exempts public companies, government authorities, banks, credit unions, bank holding companies, money transmitter businesses, securities brokers or dealers, securities exchanges, investment companies and advisors, venture capital fund advisors, insurance companies, registered entities involved in the tradition of commodities, public accounting firms, public utilities, and pooled investment vehicles. However, many of these would also qualify under the “Large Operating Company” exemption.
What Information Needs to be Filed?
The filing requires the following information:
- Information about the company:
- Company name and tax ID
- If the company is formed in the US, the jurisdiction in which it is organized
- If the company is formed outside the US, the US state in which it first registered as a foreign entity
- Information about each “beneficial owner”:
- Name, Address and Date of Birth
- A copy of a passport, drivers license, or state photo ID
In addition, if the company was first formed or qualified in the US in 2024 or later, then the company must also provide the same information (name, address, birth date, photo ID) about the individuals (called “Applicants”) who actually caused the company to be organized. Frequently, this will be an attorney or individual at a corporation service company.
Who is a “Beneficial Owner”?
Under the CTA, a “Beneficial Owner” means any individual who either:
- Owns or controls at least 25% of the ownership interests of a company; or
- Exercises “substantial control” over that company. This category includes senior officers, individuals who can appoint a majority of the board of directors or a dominant minority of the board, or who otherwise have substantial control.
I am a beneficial owner of multiple companies. Do I need to provide this information each time?
No. FinCEN provides a mechanism for you to provide this information once and obtain a “FinCEN ID,” which would then be used on each form in lieu of the other information and photograph.
When does this information need to be filed?
For US companies that were created before 2024 or foreign companies that were first qualified to do business in the US before 2024, the information needs to be provided by January 1, 2025.
For companies formed in 2024, the information needs to be provided within 90 days of formation or qualification. Companies formed or qualified in 2025 or later must provide the information within 30 days.
What do we do if any information about our company or our beneficial owners changes after filing?
If there is any change to the required information about a reporting company or its Beneficial Owners, then the company must file an updated report no later than 30 days after the date on which the change occurred. A Reporting Company is not required to file an updated report for any changes to previously reported personal information about a company Applicant.
We are late in filing our report! What now?
There are significant civil penalties for late filing of up to $591 per day, plus the possibility of criminal penalties for willful violations. However, the director of FinCEN has publicly stated that it will not use “gotcha enforcement actions,” and is, instead, focused on businesses that are willfully evading the requirements. For that reason, FinCEN recommends filing late reports as quickly as possible.
We dissolved our company. Do we still need to report?
Yes. If the Company existed for any time period in 2024 or later, even if only for a few days, then a beneficial ownership report must be filed.
We changed our company name and moved to a new state. Do we need to update our filing?
Yes. An updated report would need to be filed if a company changed its name or its state of organization. But, merely opening an officer or moving company headquarters to a new state does not require an updated report so long as it does not change the state where it is organized.
