The Corporate Transparency Act (CTA) was enacted as part of the Anti-Money Laundering Act of 2020, and requires certain entities – primarily smaller and unregulated companies – to file a report identifying beneficial owners and company applicants with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This report identifies the entities’ beneficial owners, the persons who ultimately own or control the company, and provides similar identifying information about those individuals who formed the entity. Entities in existence prior to 2024 are given until January 1, 2025 to report. Entities formed in 2024 must file their reports within 90 days of formation, and entitles formed in 2025 or later must file their reports within 30 days of formation.

Which Companies Are Required To Report?

Reporting companies include corporations, LLCs, other entities, and business trusts[1] that do not qualify for an exemption and are created or registered to do business by filing a document with Arizona’s Corporation Commission or the secretary of state or similar office of another state. Both domestic and foreign entities registered to do business in the United States are included.

Exemptions To Reporting Requirements [2]

There are some exemptions to the reporting requirement including:

• Large operating companies – Companies with at least 20 full time employees that have a physical office in the United States and more than $5 million in annual gross receipts or sales
• Public companies
• Inactive companies that were formed on or before January 1, 2020 and meet other requirements
• Tax-Exempt entities
• Governmental authorities
• Certain companies in regulated industries that meet the applicable conditions, such as banks, credit unions, money services businesses, broker-dealers, securities reporting issuers, investment companies or investment advisers, venture capital fund advisers, insurance companies, and Commodity Exchange Act registered entities.
• Pooled investment vehicles that meet the applicable conditions

Information To Be Reported

The reporting company is responsible for reporting the following:

• The reporting company’s full name, DBA, address, jurisdiction of formation or registration, TIN or other unique tax ID number
• For each Beneficial Owner – the owner’s full name, date of birth, address, photo ID with ID number shown.
• Company applicants (for reporting companies formed on or after January 1, 2024): Up to two responsible individuals’ full names, dates of birth, addresses, photo IDs with ID numbers shown.

Who Is A Beneficial Owner?[3]

A Beneficial Owner includes an individual who:

• Directly or indirectly exercises substantial control over the reporting company. This includes senior officers (president, chief executive officer, chief operating office, chief financial officer, general counsel). It also includes individuals with the ability to make important decisions on behalf of the reporting company.
• Directly or indirectly, owns or controls at least 25% of the ownership interests of the reporting company, including of convertible interests irrespective of whether these convertible interests are debt or equity, along with directly held options and warrants.
• Is a trustee of a trust, or another individual, who has the authority to dispose of trust assets
• A settlor or grantor of a trust who retains the right to revoke the trust or withdraw the trust’s assets
• A trust beneficiary who either is the sole permissible beneficiary of the trust’s income and principal, or who has a right to demand a distribution of substantially all of the trust’s assets

Exemptions To Beneficial Owners

• Minor children (if a parent or legal guardian’s information is reported)
• Individuals acting as nominees, intermediaries, custodians or agents
• Employees acting solely as employees and not as senior officers
• Individuals whose only interest in a reporting company is a future interest through a right of inheritance
• Creditors of a reporting company

Who Is A Company Applicant?

A Company Applicant is:

• An individual who creates a domestic reporting company or who first registers a foreign entity to do business in the United States
• An individual who is responsible for directing or controlling the relevant formation or registration document by another
• The Company Applicants will be limited to two individuals.

FinCEN Identifier

An individual may submit the required information, as detailed above, directly to FinCEN, and receive a unique FinCEN identifier. This individual can then provide their FinCEN identifier, instead of their personal information, to a reporting company to be used in filing a report. A FinCEN Identifier can be obtained on or after January 1, 2024.

How And When To Report

Reporting companies will file their reports in a nonpublic database maintained by FinCEN, referred to as the Beneficial Ownership Secure System (BOSS). FinCEN has taken steps to secure the database from the public. The forms for reporting are expected to be released before January 1, 2024. Companies in existence prior to 2024 are given until January 1, 2025 to report. Companies formed in 2024 must file their reports within 90 days of formation, and companies formed in 2025 or later must file their reports within 30 days of formation.

Additionally, reporting companies have an ongoing obligation to update filings within 30 days after any of the reported information changes. This means that reporting companies will need to ensure that their beneficial owners are aware of this responsibility and place an obligation on those beneficial owners to promptly inform the reporting company of any changes.

Who Will Have Access To Reported Information?

Access to the reported information will be provided to:

• Federal agencies engaged in law enforcement, national security or intelligence activity, in furtherance of those activities
• State, local and tribal law enforcement, if authorized by a court for use in criminal or civil investigations
• Federal agency on behalf of a non-US law enforcement or a foreign prosecutor or judge
• With the consent of the Reporting Company, to a financial institutions to facilitate compliance with customer due diligence requirements
• Federal and state regulators assessing financial institutions to facilitate compliance with customer due diligence requirements.
• Officers and employees of the Treasury Department for tax administration purposes

Penalties For Failing To Comply

Penalties for noncompliance or misuse of beneficial ownership information include civil and criminal penalties for willful reporting violations, including fines of up to $10,000 and imprisonment for not more than two years. Civil and criminal penalties for unauthorized disclosure and use of beneficial ownership information also exist.

Conclusion

The rules for filing contain many variables for determining who must report under the CTA. Remember, it is the Reporting Company’s responsibility to ensure compliance with the CTA. FinCEN has provided a reporting guide for small businesses to determine their reporting requirements. The guide can be found here.

[1] A business trust is rarely used in Arizona. It is a statutory trust created by filing articles, declaration of trust, or the trust agreement with the Arizona Corporation Commission.

[2] This is a general list of exemptions. Specific requirements for each category are listed in the rules and regulations of the CTA and should be reviewed for determination of exemption eligibility.

[3] Other categories of beneficial owners should be reviewed in the final rules.