10/28/2024 | Press release | Archived content
Authors: Michael T. Gershberg, Joseph P. Vitale
An important filing deadline under the Corporate Transparency Act ("CTA") is on the horizon. While many companies have already been complying with the CTA since it took effect on January 1, 2024, the reporting deadline for companies formed prior to 2024 is January 1, 2025. The CTA and regulations issued by the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCEN") require certain U.S. companies to submit reports containing information about themselves and their beneficial owners. This alert explains what companies need to know about the CTA and how to comply with its reporting requirements.
The CTA covers only "reporting companies," which include:
Therefore, subject to the exemptions discussed below, domestic corporations, limited liability companies, limited partnerships, and business trusts would fall within the scope of the CTA. In contrast, sole proprietorships, trusts, and general partnerships that do not require any filing with a secretary of state's office are not reporting companies under the CTA.
The broad definition of "reporting company" is made narrower through 23 exemptions. Many exemptions apply to regulated entities such as banks, credit unions, depositary institutions, investment advisors, and securities brokers and dealers, which are already subject to disclosure requirements by their regulators. Other exempt entities include public companies, governmental authorities, and tax-exempt entities. Subsidiaries of most exempt entities (but not subsidiaries of pooled investment vehicles, as described below) are also exempt.
Another exemption covers any "large operating company," which must meet three criteria:
Pooled investment vehicles (i.e., private funds) that are operated or advised by certain exempt regulated entities (including SEC-registered investment advisors and relying advisors, as well as their affiliated fund general partners) are also exempt. For purposes of the CTA, pooled investment vehicles include (i) any investment company, as defined in section 3(a) of the Investment Company Act, or (ii) any company that satisfies the section 3(c)(1) or section 3(c)(7) exemption and is identified by its legal name by the applicable investment adviser in its Form ADV (or will be so identified in the next annual updating amendment Form ADV).
Although subsidiaries of pooled investment vehicles are not automatically exempt, they may qualify for another exemption such as an indirect subsidiary of a public company or registered investment advisor. If fund subsidiaries are required to file under the CTA, they do not need to disclose any individual equity owners that hold an interest through an exempt fund. However, those subsidiaries do still need to disclose certain beneficial owners via the control prong (as opposed to the ownership prong) of the rules, as discussed below.
Reporting companies must disclose their "beneficial owners." These include all individuals -- not entities -- who, directly or indirectly, (i) exercise substantial control over the reporting company, or (ii) own or control at least 25% of the ownership interest of the reporting company. "Substantial control" is defined broadly and includes:
FinCEN has stated that a person (including the trustee of a trust) may exercise "substantial control" over a company through board representation, rights associated with financing arrangements, control over intermediate entities, or any other contract, arrangement, understanding, or relationship. For purposes of the ownership prong, FinCEN specifies that "ownership interest" may include equity, stock, any capital or profit interest, and convertible instruments, as well as warrants and rights to purchase, sell, or subscribe to any of the foregoing.
In addition to reporting beneficial owners, reporting companies created on or after January 1, 2024 must disclose one or two "company applicants." These include the individual:
Note that reporting companies in existence prior to January 1, 204 do not need to report a company applicant.
The CTA beneficial ownership information reporting form requires reporting companies to provide:
Note that a disregarded entity for U.S. tax purposes that does not have its own tax ID number can report its owner's tax ID number in most cases.
The personal information required for each beneficial owner includes:
To lower the compliance burden on persons who are beneficial owners or company applicants of multiple reporting companies, an individual may apply for a FinCEN identifier by providing the required personal data directly to FinCEN. The FinCEN identifier can then be reported on CTA forms in lieu of the personal information.
Date of Entity Formation |
CTA Report Deadline |
Prior to January 1, 2024 |
January 1, 2025 |
January 1, 2024 - December 31, 2024 |
90 days after formation |
January 1, 2025 and later |
30 days after formation |
Reports are only required to be filed once unless the information changes. In that case, reporting companies must file an amended report within 30 calendar days of any change in information previously provided.
FinCEN has clarified in guidance that dissolved entities are still required to file CTA reports as long as they were in existence for any period of time after the CTA took effect on January 1, 2024. This requirement applies even if an entity is dissolved prior to the January 1, 2025 deadline.
In order to help businesses prepare for CTA reporting requirements, FinCEN released multiple resources, including a list of frequently asked questions and a small entity compliance guide. In particular, entities should consider the following: