Ask the Experts: Corporate Transparency Act
By: Mark Burzych | Fahey, Schultz, Burzych, Rhodes 

Q: I have heard about the Corporate Transparency Act.  What is it?   

A: The Corporate Transparency Act (CTA) was signed into law on January 1, 2021, as a part of the National Defense Authorization Act. The purpose of the CTA is an attempt to root out money laundering activities and focuses on preventing individuals from withholding or concealing their ownership in a business entity through different shell companies.  Under the CTA, any entity classified as a “reporting company” will have to file a report with the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that identifies personal information about the company and the company’s equity owners and applicants. Most business entities in the United States will meet this reporting company classification, including most members of the MRLA.   

The CTA defines a reporting company as any corporation, limited liability company, or other similar entity created by filing a document with its respective state agency (more than likely the secretary of state). The CTA includes 23 exemptions from having to file a report to FinCEN; these include non-profit agencies, governmental authorities, banking institutions, securities firms, and accounting firms. There is also a large operating company exemption as well that applies to entities that (1) employ more than 20 employees on a full-time basis in the United States, (2) filed in the previous year a tax return demonstrating more than $5 million in gross sales, and (3) have an operating presence at a physical office in the United States.  
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If your entity meets the definition of a reporting company and is not exempt, your entity will have to file the report to FinCEN, which includes the following:  

• The Entity’s full legal name  

• Any trade or DBAs 
• Current address  
• Jurisdiction of formation  

• IRS taxpayer identification number 
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This report must also include information from the entity’s beneficial owner(s) and company applicant. The CTA defines a beneficial owner as any individual who, directly or indirectly, either exercises substantial control over a reporting company, or controls at least 25% of the ownership interests in the reporting company. The CTA defines a company applicant as an individual who directly files the document that creates the entity, or an individual who is primarily responsible for directing or controlling the filing of the relevant formation document if more than one individual is involved in the filing.   

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Thus, the report must also include the following information for every beneficial owner and the company applicant: 

• Full legal name  
• Date of birth  

• Current address 
• Unique identifying number (e.g., non-expired passport or driver’s license) and the issuing jurisdiction  
• A picture of the document with the unique identifying number​ 
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Reporting under the CTA begins on January 1, 2024. Every reporting company created or registered on or after that date must file their initial report within 30 calendar days of receiving the notice of the entity formation. Any reporting company formed before January 1, 2024 (this includes every entity in existence at this time), must file their initial report no later than January 1, 2025. The civil penalties for failing to report under the CTA include fines of not more than $500 for each day a violation continues, and the criminal penalties include fines not more than $10,000 and imprisonment for not more than two years.  
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We highly recommend contacting a professional if you have questions regarding compliance with the CTA. This legislation will dramatically change the entity formation considerations and requirements in the future. ​

MRLA ​Legal Center