Corporate Transparency Act Overview

Corporate Transparency Act Overview by Jeffrey S. Davis

Author: Jeffrey Davis

The Corporate Transparency Act (CTA) was enacted into law on January 1, 2021, as part of the Anti-Money Laundering Act of 2020, and it became effective on January 1, 2024.  The CTA’s objective is to combat illicit activity, including tax fraud, money laundering, and financing for terrorism, by requiring disclosure of more ownership information for certain domestic and foreign companies operating in the U.S. market than what was previously required under law.

The CTA defines a “reporting company” as any legal entity that is (a) formed in the United States or (b) registered to do business in the United States, by the filing of an applicable document with the Secretary of State or similar office under the laws of a State or Indian tribe. Under the CTA, legal entities within the scope of the CTA’s definition of a “reporting company” are required to file with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), a Beneficial Ownership Information (BOI) report that discloses certain information about the reporting company, its beneficial owners and other persons who associated with the reporting company, unless the legal entity falls within certain exemptions (identified below) from the reporting requirement. 

Failing to comply with the CTA’s requirements may result in significant civil and criminal penalties for reporting companies and their beneficial owners and company applicants.  

The CTA expressly exempts 23 categories of legal entities from its reporting requirements.  These categories of legal entities are generally highly regulated or subject to different ownership reporting requirements.

The following is the full list of exemptions:

  • Securities reporting issuer;
  • Governmental authority;
  • Bank;
  • Credit union;
  • Depository institution holding company;
  • Money services business;
  • Broker or dealer in securities;
  • Securities exchange or clearing agency;
  • Other Exchange Act registered entity;
  • Investment company or investment adviser;
  • Venture capital fund adviser;
  • Insurance company and insurance producer;
  • State-licensed insurance producer;
  • Commodity Exchange Act registered entity;
  • Accounting firm;
  • Public utility;
  • Financial market utility;
  • Pooled investment vehicle;
  • Tax-exempt entity;
  • Entity assisting a tax-exempt entity;
  • Large operating company which is generally any company having more than 20 full-time employees, operating inside the United States and having reported gross income exceeding USD $5 million on the previous year’s federal tax return;
  • Subsidiary of certain exempt entities; and
  • Inactive entity.

 

Currently, a company created or registered on or after January 1, 2024 is required to file a BOI report within 90 days after receiving notice that the company has been formed or registered. A company created or registered before January 1, 2024 must file an initial BOI report before January 1, 2025.  A company created or registered on or after January 1, 2025 must file an initial BOI report within 30 days after receiving notice that the company has been formed or registered. 

 


If you have any questions about the Corporate Transparency Act or would like our assistance analyzing your legal entity’s obligations under the CTA or drafting and/or amending your legal entity’s governing documents in consideration of the new reporting requirements, please contact Jeff Davis at jdavis@hdrbb.com 

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