What is the Corporate Transparency Act?
The Corporate Transparency Act Transparency Act (the “CTA”) was enacted on January 1, 2021, as part of the Anti-Money Laundering Act of 2020. The CTA goes into effect on January 1, 2024. Among other things, the CTA requires “reporting companies” to (i) report certain beneficial ownership information to the US Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”), (ii) disclose information about who formed the entity, and (iii) report changes to previously reported information. The CTA is intended to assist law enforcement agencies in identifying and stopping money laundering, tax fraud, terrorism, and other illegal activities that often take place using shell companies.

What is a Reporting Company?
The CTA applies to “reporting companies,” which are divided into two broad categories, domestic reporting companies and foreign reporting companies. Domestic reporting companies include (i) corporations, LLCs, or other entities (such as limited partnerships or business trusts) created by filing a document with a secretary of state, or similar office, under the laws of a state of the United States or any of its territories, or (ii) an Indian tribe. Foreign reporting companies include entities not formed under the laws of a state of the United States or any of its territories that are (i) corporations, LLCs, or other entities, (ii) formed under the law of a foreign country, and (iii) registered to do business in the United States or any of its territories.

The CTA specifically exempts certain entities from its reporting requirements. Entities exempt from the CTA reporting requirements include:

• Large operating companies;
• Public companies;
• Inactive entities;
• Investment companies;
• Venture capital fund advisers;
• Pooled investment vehicles;
• Insurance companies; and
• Various other highly regulated, government, and tax-exempt entities.

What are the Reporting Requirements?
The CTA requires reporting companies to identify their “beneficial owners” and disclose information about who formed the entity. A beneficial owner is any individual who, directly or indirectly, either (i) exercises substantial control over a reporting company, or (ii) owns or controls at least 25% of the ownership interests of a reporting company. A person exercises substantial control of a reporting company if, for example, such person serves as a senior officer, has authority to appoint or remove senior officers, or has substantial influence over major company decisions. A person has an ownership interest of a reporting company if they own, control, or are a party to any instrument or contract used to establish ownership, such as equity, stock, capital, or profits interests. For the purposes of the CTA, the ownership interest can be direct or indirect, including through joint ownership, holding companies, or trusts. Further, the CTA also considers ownership interests that are granted through convertible instruments, warrants, options and other similar ownership arrangements.

In addition to the beneficial owners, the CTA requires reporting companies to disclose information about who formed the entity, known as a company applicant. A company applicant is an individual who either (i) directly files the document that creates a domestic reporting company or first registers a foreign entity to do business in the United States, or (ii) is primarily responsible for directing or controlling the filing of the relevant document by another, if more than one individual participates in the filing.

Each reporting company must report the following information about the company:

• Entity name and any trade names;
• Street address;
• State or territory of formation and, for foreign entities, the state, territory, or tribal jurisdiction of registration; and
• A unique identification number, such as a taxpayer identification number, employer identification number, entity registration number, or legal entity identifier number.

Each reporting company must also report the following information about its beneficial owners and company applicants:

• Full legal name;
• Date of birth;
• Current street address; and
• A unique identification number from an acceptable document, such as a state issued ID or passport, along with an image of such document.

What are the Reporting Deadlines?*
The CTA imposes different filing deadlines depending on whether a reporting company is in existence, or in the case of a foreign reporting company, registered to do business in the United States on January 1, 2024. A reporting company that is created or becomes a foreign reporting company before January 1, 2024, has until January 1, 2025, to file its initial report. A reporting company that is created or becomes a foreign reporting company after January 1, 2024, must file its initial report within 90 days of formation or registration If there is ever a change in the information reported in the initial report, a reporting company has thirty calendar days to file an updated report.

What should I do next?
The CTA imposes civil and criminal penalties of up to $500 for each day that a violation continues and imprisonment for up to two years, or both, for reporting false information or failing to report complete or updated information. If you have questions about your CTA reporting requirements or would like assistance filing your CTA report, please reach out to Devin O’Donnell at dodonnell@gravislaw.com or 406-412-4362.