Navigating the Corporate Transparency Act (CTA): Your FAQs Answered

Christopher K. Batts
Dec. 18, 2023
Man working on laptop on desk

The Corporate Transparency Act (CTA), set to take effect on January 1, 2024, will task many businesses with unprecedented reporting requirements. As we anticipate this significant shift, we have compiled a brief summary of our answers to the most frequently asked questions about the CTA:

Q: When does the CTA go into effect?

A: January 1, 2024.

Q: When does an entity need to file the required information?

A: This depends on when the entity was formed:

  1. Entities formed before January 1, 2024, will have until January 1, 2025.

  2. Entities formed in 2024 will have 90 days after formation.

  3. Entities formed on or after January 1, 2025, will have 30 days after formation.

Q: Who does the CTA apply to?

A: The CTA applies to nearly all entities (LLCs, partnerships, corporations, etc.) unless an exemption applies. Any entity that is not exempt is termed a “reporting company.”

Q: What exemptions are available?

A: There are 23 exemptions available. The following is a summarized list of some of the key exemptions:

  1. Large Operating Company: This exemption is available to entities that meet the following criteria:

    1. More than 20 full time employees in the United States; 

    2. Has a physical presence for operations in the United States; and

    3. In the previous year the entity reported more than $5,000,000 in revenue.

    This list of criteria is just a summary. There are some important nuances to consider here if you think your entity may qualify for the large operating company exemption. For example, the count of full-time employees does not include employees of affiliates.

  2. Publicly Traded Company: Publicly traded companies are exempt. 

  3. Tax-Exempt Entities: This exemption is available to the following entities:

    1. 501(c) nonprofit organizations;

    2. 527(e)(1) political organizations; and

    3. Charitable trusts described in IRC 4947(a)(1) or (2).

  4. Registered Public Accounting Firm: This exemption is available to accounting firms registered with the Public Company Accounting Oversight Board under the Sarbanes-Oxley Act. Because most accounting firms are not registered with the PCAOB, most accounting firms are not exempt under the CTA.

  5. Subsidiary of Exempt Entity: This exemption is available to entities whose ownership interests are controlled by or wholly owned, either directly or indirectly, by one or more entities that are exempt.

  6. Other Exemptions: Some other exempt entities include banks, credit unions, registered brokers/dealers, investment companies, and insurance companies.

The above list is not exhaustive, and the language under each exemption is only a summary. Please review the full language of the Final Rule and/or consult with an attorney to determine whether your business, nonprofit organization, or other entity is exempt from the CTA reporting requirements.

Q: What information must be reported under the CTA?

A: A reporting company (an entity not exempt under the CTA) must submit information about the company and certain information about its beneficial owners, which is referred to as “Beneficial Ownership Information” or “BOI”:

  1. Reporting company information:

    1. Full legal name of the reporting company;

    2. Trade names or “doing business as” names used by the reporting company;

    3. Physical U.S. street address of the reporting company;

    4. State of formation/registration; and

    5. Taxpayer Identification Number (TIN).

  2. Beneficial Ownership Information:

    1. Full legal name;

    2. Date of birth;

    3. Current street address; and

    4. Identifying number from the individual’s passport or driver's license and an image of such document.

Q: Who is a “beneficial owner” of a reporting company?

A: Any individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the reporting company.  At least one such individual must be reported for each reporting company, and there is no maximum number.  “Substantial control” means that the individual:

  1. Is a senior officer;

  2. Has authority over the appointment/removal of any senior officer or a majority of the board of directors;

  3. Directs, determines, or has substantial influence over important decisions made by the reporting company; or

  4. Has any other form of substantial control over the reporting company.

Q: How do reporting companies report the required information?

A: Reporting companies will report their information through a reporting system on FinCEN’s website. This system is anticipated to go live on January 1, 2024.  

Q: Do you need an attorney to report the required information?

A: No, reporting companies can file information without an attorney; however, we recommend consulting with an attorney if you have any questions about the applicability of exemptions, about what information is required, or about the CTA in general.

In summary, the CTA marks a pivotal moment in corporate reporting obligations. This overview addresses key questions, but it is essential to review the full language of the Final Rule and/or seek legal counsel to ensure compliance with the CTA’s reporting requirements. Please contact one of our corporate attorneys if you have any questions.