What is The Corporate Transparency Act? What Entities are Exempt From The CTA?

Do I need to file under the Corporate Transparency Act? What are the Corporate Transparency (CTA) reporting deadlines? Who has to file a corporate transparency form? Do I need help filing a Corporate Transparency form? Who has to file a Beneficial Ownership Information form? What information is required for Corporate Transparency? What is a FinCen ID?

By James L. Cunningham Jr., Esq.

Have you heard about the Corporate Transparency Act? It’s a federal law that became effective on January 1, 2024. If you own or partly own an LLC, a partnership, or a corporation, especially a small business, this law is something you need to understand—and you may need to take action.

The Corporate Transparency Act (CTA) requires specific information about the ownership of most small businesses to be reported to the United States Financial Crimes Enforcement Network (FinCEN). A company that is required to file information about its ownership is called a “Reporting Company.”

In this article, I’ll take a close look at the CTA. But you may also wish to watch the accompanying webinar to learn more. Need help with compliance? Contact us here at CunninghamLegal.

What is the Corporate Transparency Act? Why Was the CTA Passed?

The Corporate Transparency Act (CTA), enacted in 2021, is a key legislative initiative designed to improve the transparency of business entities in the United States. This law requires that certain U.S. businesses, especially smaller corporations and limited liability companies (LLCs), disclose information about their beneficial owners—the individuals who ultimately own or control these entities. These are the people who have a strong say in business decisions or who own 25% or more of the business. All these details must be given on a “Beneficial Ownership Information Form.”

The main purpose of the Corporate Transparency Act is to deter money laundering, fraud, and other financial crimes by making it more difficult for individuals to conceal their identities behind anonymous shell companies.

Under the Corporate Transparency Act, qualifying businesses are required to submit their beneficial ownership information reports to the Financial Crimes Enforcement Network (FinCEN)—including the names, addresses, and identification details of their beneficial owners. This information must be regularly updated to reflect any ownership changes. 

The Corporate Transparency Act equips law enforcement and regulatory bodies with essential data, helping to monitor financial flows and enforce laws more effectively. By complying with the Corporate Transparency Act, businesses contribute to enhancing the integrity of the U.S. financial system and promoting corporate accountability.

What Are the Deadlines Under the Corporate Transparency Act?

Here’s the breakdown of when filings are due under the Corporate Transparency Act:

Company Status	Company Creation Date	Due Date
Existing	Before January 1, 2024	File By January 1, 2025
Newly Formed	During 2024	File 90 Days after entity formation
Newly Formed	On or after January 1, 2025	File 30 Days after entity formation

*If your business ownership changes, you must update this information within 30 days.

At CunninghamLegal, we are helping our clients comply with the Corporate Transparency Act. Please contact us for more information.

What Is FinCEN?

FinCEN, or the Financial Crimes Enforcement Network, is the law enforcement agency central to the Corporate Transparency Act. FinCEN’s purpose is to safeguard our financial system from illegal activities such as money laundering and dodging taxes. The CTA effort is part of a worldwide program to identify criminality of all kinds, including terrorist organizations funneling cash through businesses. FinCEN is under the U.S. Department of Treasury.

If you are the kind of person who thinks, “I’m not going to worry about this extra piece of red tape,” I urge you to think again. The Corporate Transparency Act is tied to criminal enforcement, and failure to comply can lead to civil penalties of up to $500 per day (capped at $10,000), and criminal penalties including up to two years in prison.

[March 2024 Note] Although the CTA was recently ruled unconstitutional by a U.S. District Court Judge in Alabama, that ruling may only apply to the person who filed the lawsuit and only in that District. Our understanding is that the law still applies to everyone else, and the impact of that ruling is still unknown. Whether the federal government will appeal or the CTA will undergo revisions remains to be seen. Please bookmark this web page for updates or contact our office to see if you must comply.

What Businesses Have to File Under the Corporate Transparency Act?

The Corporate Transparency Act’s disclosure requirements apply to all business entities that are formed or registered in the United States, with a few limited exceptions. These exceptions include publicly traded and larger companies, certain financial institutions, and certain non-profit organizations. In general, the Corporate Transparency Act will require most small businesses doing business in the U.S. to file a form with the Department of Treasury to share information about their company and its ownership.

The person who submits the necessary business documents for the entity’s formation to the Secretary of State is also responsible for reporting the details of the Beneficial Owners of the entity. This could be the Business Owner, a Registered Agent, a Corporate Officer, or the attorney who filed your entity formation paperwork.

This rule applies to all kinds of businesses, including corporations, LLCs, partnerships, and trusts.

There are 23 exempt business types that do not need to file information under the Corporate Transparency Acts. It’s worth noting that these exemptions exist primarily because these entities have other reporting obligations elsewhere or don’t have sufficient assets. A few of those exempt include:

• Large Operating Companies: Imagine a larger or publicly traded corporation with more than 20 full-time employees based in the U.S. This corporation reported over $5 million in revenue from U.S. sources to the IRS in the last year, and it operates from a physical location within the U.S. Companies like this are generally exempt from the reporting requirements of the Corporate Transparency Act.
• Subsidiaries of Large Companies: Think about those large companies we just mentioned. They may have one or more subsidiaries, perhaps even wholly-owned, either directly or indirectly. These subsidiaries, thanks to their parent companies, are also off the hook. They don’t have to worry about the reporting requirements either.
• Inactive Entities: Entities that have been in existence since January 1, 2020, or even earlier, but are not really doing anything are another important category. They must not have any foreign owners and must not have changed hands in the last couple of months. Financially, they’ve been laying low, having neither sent nor received more than $1,000 in the past year. In addition, they don’t really own any kind of assets, whether in the U.S. or abroad. These “sleeping entities,” as it were, are also exempt from the Corporate Transparency Act’s reporting requirements.

As you can see, these rules include some ambiguity. Please contact CunninghamLegal to discuss your firm’s requirements.

What Is a Beneficial Owner Under the Corporate Transparency Act?

A key requirement of the Corporate Transparency Act is the reporting of all “Beneficial Owners” of an entity.

A Beneficial Owner, defined under the Corporate Transparency Act, is a natural person (i.e., a human) who either exercises “substantial control” over an entity or owns or controls more than 25% of the ownership interests of the entity.

This rule about owning or controlling a business can apply in many ways, not just through direct ownership. It covers a variety of agreements, relationships, and other setups. The term “Beneficial Owner” is designed to capture those individuals who have significant influence or ownership stake in an entity, even if their connection is not immediately clear or directly linked.

For instance, consider an individual named Owen who is the sole Member and Manager of Maple Street LLC, a company that owns an apartment building and generates a gross revenue of $100,000 with no employees. In this scenario, Owen would be considered a Beneficial Owner under the Corporate Transparency Act and would have to report to the Financial Crimes Enforcement Network (FinCEN).

On the other hand, consider Mike, who manages Main Street LLC, a self-storage facility. Mike only holds a 20% ownership interest but because he has substantial control, Mike would also be classified as a Beneficial Owner. However, the other four partners, each owning 20% but without substantial control, would not fall under the definition of Beneficial Owners.

Through these examples, you can see the importance of both the percentage of ownership and the degree of control in determining who is a beneficial owner—and you can also see how this can get complicated! For example… what precisely is “substantial control”?

Who Is Excluded from Being a Beneficial Owner Under the Corporate Transparency Act?

Under the Corporate Transparency Act, certain individuals are explicitly excluded from the definition of a “Beneficial Owner.” These exclusions include:

• A minor child, if the information of the child’s parent or guardian is reported;
• An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual (trustee, executor, agent under durable power of attorney);
• An individual acting solely as an employee of the entity and whose control over the entity is derived solely from their employment status;
• An individual whose only interest in the entity is through inheritance;
• A creditor of the entity.

Additional information about the reporting requirements, including answers to questions such as “Is my company required to report beneficial ownership information to FinCEN,” “Who is a beneficial owner,” and “When do I need to report my company’s beneficial ownership information” is available on FinCEN’s beneficial ownership information webpage, https://FinCEN.gov/BOI.

If you are unclear on these exemptions or rules, you may wish to contact our office for a consultation.

What Are the Penalties for Failure to File Under the Corporate Transparency Act?

The Corporate Transparency Act carries significant penalties for non-compliance. Any company that fails to meet the reporting requirements can face civil penalties of up to $500 per day (capping at $10,000), and individuals providing false, incomplete, or outdated information could potentially face fines up to $10M and imprisonment of up to two years.

Complying with the Corporate Transparency Act: How to File a Report

1. First, you need to figure out if you are required to disclose information about your entity’s beneficial owners to the Financial Crimes Enforcement Network (FinCEN). (Besides reading this article carefully, you may also wish to watch the webinar). Additional information is available on FinCEN’s beneficial ownership information webpage, https://FinCEN.gov/BOI. You may wish to contact CunninghamLegal for a consultation.
2. Check the deadlines related to your company type. See the chart at the beginning of this article.
3. If you need to report under the Corporate Transparency Act, applicable entities need to submit a report before the proper deadline online to the Financial Crimes Enforcement Network. You can find their portal at https://boiefiling.fincen.gov/.
4. As part of your report, you will need to submit Beneficial Ownership Information with specific details about the people who benefit from the entity. Here’s an outline of the current information you’ll need to gather and submit:
   1. Beneficial Ownership Information (for each Beneficial Owner)
      1. Full name
      2. Date of birth
      3. Current residential address
      4. Passport number or other government-issued identification number
         1. Non-expired US driver’s license
         2. Non-expired U.S. passport
         3. Non-expired identification document issued by a State, US territory or possession, local government, or Indian tribe
         4. If none of those documents exist, a non-expired foreign passport can be used
         5. An image of the document must also be submitted
   2. Company information
      1. Legal name and alternate name(s)
         1. As recorded on the articles of incorporation or other documents creating or registering the entity
         2. DBA names, or “trading as” or T/A names
         3. Do not abbreviate names unless an abbreviation is part of the legal name
      2. Tax Identification Number (TIN) or Social Security Number (SSN)
      3. Jurisdiction of formation or first registration
      4. Current U.S. address
   3. Company Applicant
      1. Company applicant FinCEN ID (If you don’t have one, just fill out the entire form and it will be provided)
      2. Legal name and date of birth
      3. Current address
      4. Form of identification and issuing jurisdiction (Government issued ID like a passport, ID, or Driver’s License)

After you submit the report, you’ll get a unique FinCEN Identifier for your company. This number will come in handy for future reporting requirements.

If your Beneficial Owners change, you must update this information within 30 days by completing another filing!

What We Do at CunninghamLegal

The lawyers and staff at CunninghamLegal help people plan for some of the most critical times in their lives and then guide them when those times come.

The Corporate Transparency Act is a significant piece of legislation that aims to enhance transparency and deter illicit activities. Complying with it might seem like a daunting task, especially for smaller businesses. However, we’re here to help make the process as easy as possible.

Navigating the CTA can be simpler with a savvy attorney. They can guide you through the process, potentially saving you from costly mistakes and giving you peace of mind.

We have offices throughout California with expert estate planning, tax planning, and real estate transaction attorneys. We invite you to contact us for help and advice. We offer in-person, phone, and virtual appointments. Just call (866) 988-3956 or book an appointment online.

Please also consider joining one of our free online Estate Planning Webinars.

We look forward to working with you!

Best, Jim

James L. Cunningham Jr., Esq.
Founder, CunninghamLegal

At CunninghamLegal, we guide savvy, caring families in the protection and transfer of multi-generational wealth.