The Corporate Transparency Act: What you need to know now

The Corporate Transparency Act (CTA) was passed in 2021 and became effective beginning on Jan. 1, 2024. The CTA requires certain legal entities (such as corporations, limited liability companies and limited partnerships) in the U.S. to begin reporting identifying information about the individuals who own or control the entity. This is part of the federal government’s goal to strengthen its efforts involving money laundering, terrorism financing and other financial crimes.

What entities are subject to reporting requirements?

The CTA is focused on entities created by the filing of formation documents with a secretary of state (or a similar body) in any state or territory of the U.S. and any non-U.S. entities that are registered to do business in any state or territory of the U.S. Generally, this will include corporations, limited liability companies (LLCs), limited partnerships (LPs), limited liability partnerships (LLPs) and certain business trusts. Sole proprietorships, general partnerships, joint ventures and trusts are usually not created by filing formation documents and therefore, are generally exempt from reporting.

Twenty-three types of entities are exempt from reporting including an exemption for large operating businesses that meet the following requirements: (1) have more than 20 full-time employees, (2) have an operating office at a physical location in the U.S. and (3) have more than $5,000,000 in gross receipts as reported on the prior year’s federal income tax return.  Other notable exceptions include – banks, publicly-traded companies, insurance companies and tax-exempt entities – that are already subject to regulation and disclosure, although this exemption is not likely to provide relief for many small- or mid-sized businesses.

What is required to be reported under the CTA and what is the timing?

There is some newly created terminology that is critical to compliance with the CTA:

• Reporting company: an entity required to comply with the CTA
• Beneficial owner: a person who directly or indirectly controls at least 25% of, OR who directly or indirectly can exert substantial control over the reporting company