The 2024 Corporate Transparency Act (CTA) went into effect January 1, 2024.  Many entities that have received exemptions from SEC registration, such as real estate investment single purpose vehicles ("SPV") or crypto currency wallet entities will now be required to register through the Treasury Department's Financial Crimes Enforcement Network (FinCEN).  The CTA applies to entities registered with a state's secretary of state office such as a Delaware corporation or limited liability company.

What is the federal Corporate Transparency Act?

The Corporate Transparency Act (CTA) will require non-exempt entities to report certain information to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). The CTA was designed to combat illegal activities, namely money laundering, tax evasion and funding terrorist organizations.

Who must register?

Under the CTA, "Reporting Companies" is a broadly defined term. It includes all entities that are formed or registered to do business in the United States by filing a document with the secretary of state or a similar office, and foreign entities formed under the laws of a foreign country that filed a document with the United States secretary of state or a similar office. For example, corporations, limited liability companies, and limited liability partnerships are all "Reporting Companies" for purposes of the CTA. If there are several entities within a company, they each must register and provide a report.

However, certain entities are exempt from reporting. This includes banks, insurance companies, publicly traded companies, pooled investment vehicles, tax-exempt entities including 501(c) organizations, and tax-exempt political organizations. Additionally, an exemption applies to "large operating companies," which are companies that: 1) employ more than 20 full-time employees in the United States, 2) filed in the previous year a United States federal income tax or tax return with more than $5 million in gross receipts or sales, and 3) operate out of a physical office in the United States. Subsidiaries of exempt entities are also exempt from reporting.

What must be reported?

There are three categories of information that Reporting Companies must provide in their report: 1) beneficial ownership information (BOI), 2) information about company applicants, and 3) general company information.

BOI includes information about any individual who directly or indirectly owns or controls twenty-five percent of the company's ownership interests and any individual who has substantial control over the company. In most cases, this will include a company's senior officers and individuals authorized to appoint or remove officers. Company applicants are the individuals involved in forming the company. For example, the individual who filed the document that created the company, as well as anyone who directed or controlled that filing.

Each beneficial owner and company applicant must provide in the report: their full legal name; their date of birth; their current residential or business address; a unique identifying number from a non-expired U.S. passport, driver's license, or other government-issued identification document; and an image of the document on which that number appears. The general company information that must be reported includes the company's legal name, trade name, current address, jurisdiction of formation, and employer identification number.

Alternatively, a "FinCEN" identifier may be provided, which is a number issued to a company or individual by FinCEN upon request. Reporting a FinCEN identifier instead of the above information may provide companies with more privacy and allow for easier reporting—particularly if an individual is a beneficial owner of multiple companies.

When must the Reporting Company comply?

Reporting Companies that were formed before January 1, 2024 must file their initial report with FinCEN by January 1, 2025. Reporting Companies that were formed between January 1, 2024 and January 1, 2025 must file their initial report within 90 days of formation. Reporting Companies that were formed after January 1, 2025 must file within 30 days of formation.

What are the penalties for failing to comply?

Reporting Companies that fail to comply with the CTA's requirements, or willfully provide false information to FinCEN, will face harsh penalties. They will be liable for civil penalties of up to $500 per day of noncompliance. Additionally, they may be fined up to $10,000, imprisoned for up to two years, or both. The CTA provides a 90 day safe harbor for Reporting Companies that fail to comply to correct a report.