The Corporate Transparency Act (CTA) is a piece of legislation passed in the United States aimed at combating money laundering, terrorism financing, and other illicit activities facilitated by anonymous shell companies. It was enacted as part of the National Defense Authorization Act for Fiscal Year 2021 and represents a significant shift in U.S. corporate disclosure requirements. It requires small business entities to report beneficial owner information (BOI) to the Financial Crimes Enforcement Network (FinCEN) starting in 2024. (FinCEN is a bureau of the U.S. Department of the Treasury.)

FinCEN defines a beneficial owner as any individual who, directly or indirectly, exercises substantial control over the company or owns or controls at least 25% of its ownership interests.

FinCEN notes that an individual can exercise substantial control over a reporting company in four different ways. If the individual falls into any of the categories below, the individual is exercising substantial control:

• The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
• The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
• The individual is an important decision-maker for the reporting company. 
• The individual has any other form of substantial control over the reporting company, as explained further in FinCEN’s Small Entity Compliance Guide (see Chapter 2.1, “What is substantial control?”).

According to FinCEN, any entity that meets the following criteria is considered a “reporting company” and must file a beneficial ownership report.  

• Small Companies: Entities with less than 20 full-time employees, less than $5 million in gross receipts or sales, and a physical office in the U.S.
• Corporations, LLCs, and Other Similar Entities: Any domestic corporation, limited liability company (LLC), or similar entity created under the laws of a U.S. state or tribal jurisdiction.
• Foreign Companies Registered in the U.S.: Any foreign entity registered to do business in the United States.

The following 23 types of entities are exempt from the beneficial ownership information reporting requirements. 

• Securities reporting issuer
• Governmental authority
• Bank
• Credit union
• Depository institution holding company
• Money services business
• Broker or dealer in securities
• Securities exchange or clearing agency
• Other Exchange Act registered entity
• Investment company or investment adviser
• Venture capital fund adviser
• Insurance company
• State-licensed insurance producer
• Commodity Exchange Act registered entity
• Accounting firm
• Public utility
• Financial market utility
• Pooled investment vehicle
• Tax-exempt entity
• Entity assisting a tax-exempt entity
• Large operating company
• Subsidiary of certain exempt entities
• Inactive entity

For companies formed or registered after January 1, 2024, the beneficial ownership information must be filed with FinCEN within 30 days of the company’s formation or registration.

For companies existing before January 1, 2024, the deadline to file beneficial ownership information with FinCEN is January 1, 2025. This gives existing companies a year to comply with the new reporting requirements.

If a company has previously filed beneficial ownership information but there’s a change in that information (e.g., a change in beneficial owners, ownership percentage, or other significant details), the company must update its filing with FinCEN within 30 days of the change.

Compliance with these deadlines is crucial, as failure to do so can result in penalties and other legal consequences.

Information about the company and beneficial owner, and, for companies formed or registered after January 1, 2024, information about the “company applicant,” who is the individual who files the formation or registration documents for the company.

This includes names, dates of birth, addresses, identifying numbers (such as a passport or driver’s license), and identifying information about the company.

Beneficial Ownership Information (BOI) reports submitted under the Corporate Transparency Act (CTA) are not public information. They are kept confidential to protect the privacy of individuals and businesses providing this information. Access to these reports is limited to:

• Law Enforcement and Regulatory Agencies: To aid in investigations and enforcement of laws.
• Financial Institutions: For compliance with anti-money laundering regulations and other legal requirements.
• Authorized Government Agencies: In specific cases where FinCEN permits it.

This confidentiality helps protect sensitive personal data while allowing relevant authorities to use the information to combat illicit financial activities. Although BOI reports contain detailed information about beneficial owners, they are not accessible to the general public.