Corporate Transparency Act Filing Alert
November 7, 2024
The Corporate Transparency Act (CTA) mandates the disclosure of certain information for all corporations, limited liability companies, and limited partnerships—unless specifically exempted. Such information includes details about beneficial owners and the individuals who create covered entities. The CTA took effect on January 1, 2024, and while entities created on and after January 1, 2024 have had to promptly file under the CTA, filings for all non-exempt entities created before January 1, 2024 will need to file by January 1, 2025. Since this deadline is fast approaching, companies should act now to comply with their CTA filing obligations to avoid potential civil and criminal penalties.
This bulletin is intended to provide a high-level overview of CTA beneficial ownership filings and should not be considered a comprehensive review that can be relied upon without consultation of knowledgeable legal advisors. The lawyers at Feuerstein Kulick welcome the opportunity to help you with any CTA-related obligations.
Overview:
The CTA, which is regulated by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and stems from the Anti-Money Laundering Act of 2020, requires any non-exempt entity to disclose specific information to FinCEN. Starting January 1, 2024, all corporations, limited liability companies, and limited partnerships must adhere to these requirements unless an applicable exemption applies.
More specifically, the CTA mandates that anyone having above a certain level of ownership or control of a non-exempt entity must be reported as a “beneficial owner.” A beneficial owner is defined as any individual who, either directly or indirectly, holds substantial control over the reporting company or owns (directly or indirectly) at least 25% of the ownership interests of the company. Control primarily extends to key officers or members of the board, who exert substantial influence over significant decisions. FinCEN provides guidance on determining “substantial control”, which generally includes senior officers of the company, individuals with the authority to terminate officers or board members, board directors that exert significant control over important business decisions, or individuals who exercise other forms of substantial control.
Any information disclosed under the CTA is not subject to FOIA requests, but FinCEN is permitted to share this information with (i) federal homeland security agencies, (ii) the Department of Treasury, (iii) state and local law enforcement agencies for authorized use in criminal investigations, and (iv) financial institutions subject to customer due diligence requirements, with the reporting company’s consent.
Non-Compliance:
It is unlawful to (i) not report or fail to update information required for disclosure under the CTA, and (ii) knowingly provide false information in any CTA filing. Civil penalties for non-compliance can be up to $591 per day, adjusted for inflation, for unresolved violations. In the case of more serious violations, criminal penalties can be up to $10,000 and/or two years in prison.
Reporting Requirements:
I. Existing Entities:
All entities formed before January 1, 2024 must report the following information by January 1, 2025:
Reporting Company Information:
Legal name and any trade or ‘doing business as’ names;
Principal business address;
Formation jurisdiction, or for foreign entities, where they were first registered; and
Taxpayer Identification Number or Employer Identification Number.
Beneficial Ownership Information:
Legal name;
Date of birth;
Residential address; and
Unique identification number from a government-issued ID and a copy of that document (for example, a drivers license or passport).
II. New Entities:
All entities formed between January 1, 2024, and January 1, 2025 must report this information within 90 days of their formation, as has been the case since the beginning of 2024.
All entities formed on or after January 1, 2025 must report this information within 30 days of their formation.
III. Amendments:
Any changes to the information reported under the CTA must be updated within 30 days. This creates a responsibility for reporting companies and their beneficial owners to monitor and disclose applicable changes.
Exemptions:
The CTA outlines 23 exemptions, primarily for entities already subject to significant government oversight. This includes banks, credit unions, insurance companies, and registered investment firms. Other notable exemptions also include:
Large Operating Companies: Defined as entities employing over 20 full-time staff in the U.S., maintaining a physical office, and having reported over $5 million in gross receipts on their federal tax return for the previous year.
Inactive Entities: Entities that were established before January 1, 2020, are not currently active, and meet specific criteria regarding ownership and financial transactions.
Subsidiaries of Exempt Entities: These are entities fully controlled by exempt organizations, with certain exceptions.
Legal Developments:
Multiple pending cases have challenged the enforceability of the CTA. In a March, 2024 lawsuit by the National Small Business Association and a small business owner in the Northern District of Alabama the federal court ruled that the CTA is unconstitutional and exceeded Congress's authority. This case is currently being appealed. Additionally, a federal court in Oregon denied a motion to block the enforcement of the CTA. While other challenges are ongoing, no stay on enforcement of the CTA is currently in place, and as such FinCEN continues to enforce the reporting requirements for all non-exempt entities other than the plaintiffs in these cases.
Recommended Actions:
You should consult your legal adviser to determine if CTA filing requirements apply to your business. The attorneys at Feuerstein Kulick are available to answer any questions you may have about CTA compliance and are well-equipped to assist with the reporting process. With the January 1, 2025 deadline fast approaching, it’s highly recommended that you evaluate which of your entities are subject to the CTA and which qualify for exemptions. Please reach out to Bryan Meltzer (bryan@dfmklaw.com) or Anan Kahari (akahari@dfmklaw.com) for further information or assistance.
Bryan Meltzer | Partner
(646) 793-3098
Anan Kahari | Associate
(929) 581-1916