The Corporate Transparency Act: What you need to know

Bruce E. Loren and Lucia E. DeFilippo
Mar 12, 2024

The newly-enacted Corporate Transparency Act (CTA) will require many businesses (such as corporations or limited liability companies) to disclose the names of the companies’ beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This article explains basic information about the newly enacted law and what is required of each reporting company.

I.   What is the Corporate Transparency Act and to whom does it apply?

The CTA was signed into law on January 1, 2021, and became effective on January 1, 2024. The primary purpose of the CTA is to enhance corporate transparency and address issues related to money laundering, terrorism financing, and other illicit activities. The CTA focuses on requiring each “reporting company” to disclose information about their beneficial ownership and company applicants to FinCEN. A reporting company includes all corporations, limited liability companies, and other similar entities that are created by the filing of a document with a secretary of state. In Florida, “reporting companies” also include, but are not limited to, limited liability partnerships and limited liability limited partnerships.

II.   Who is exempt?

There are 23 “exempt entities” that do not need to file a report with FinCEN. Many of the 23 exempt entities are heavily regulated by statutes and regulations that already require the disclosure of beneficial ownership. Some of the more common exempt entities include:

  • banks;
  • federal or state credit unions;
  • bank savings and loan holding companies;
  • registered money transmitting business; and
  • certain tax exempt entities.

There is also a “Large Operating Company” exemption. This exemption is available to organizations that:

  • Employ more than 20-full time workers, either within or outside the United States;
  • Maintain an active office within the United States; and
  • Filed a federal income tax return in the United States for the previous year, with gross receipts or sales exceeding $5,000,000.

III.   What does it mean to be a beneficial owner?

The CTA defines a “beneficial owner” as any individual who directly or indirectly exercises substantial control over the entity or who owns or controls at least 25% of the ownership interests of the entity. A beneficial owner does not include, a minor child, an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual, an individual solely acting as an employee, an individual whose interest in the company is through a right of inheritance, or a creditor of the company. By disclosing this information to FinCEN, the aim is to prevent the misuse of anonymous shell companies for illegal activities.

IV.   Who is a company applicant?

A “company applicant” is defined as the individual who “directly files the document (Articles of Incorporation, Articles of Organizations, or similar filings) to create or register the reporting company,” and the individual who is “primarily responsible or controlling such filing.” The CTA requires the disclosure of both the beneficial owners of a company and the company applicants. A reporting company created or registered to the state before January 1, 2024, is not required to report information for any company applicant.

V.   What information needs to be provided to FinCEN?

The CTA requires each reporting company to submit a report to FinCEN identifying each beneficial owner and company applicant including the following information:

  • Full legal name;
  • Date of birth;
  • Current residential or business street address; and
  • Unique identifying number from an acceptable identification document; or FinCEN identifier.

A reporting company created to do business before January 1, 2024 will have until January 1, 2025 to file its initial report. A reporting company created in 2024 will have 90 days to file after receiving actual or public notice that its creation or registration is effective.  A reporting company created or registered on or after January 1, 2025, will have 30 days to file after receiving actual or public notice that its creation or registration is effective.

VI.   How to file

The penalties for non-compliance may be severe, including civil penalties of $500 per day, fines up to $10,000, or even imprisonment of up to 2 years. As such, it is imperative that you contact a professional to guide you in the process. The first step is determining if your company falls within one of the 23 exceptions to reporting.

If your company does not fall within any of the exemptions, you will need the reporting company’s information, which includes: the name of your company, trade name or d/b/a, current address or principal place of business, and IRS Taxpayer Identification Number (EIN). Reporting requirements do not require filing Social Security Identification Numbers.

Then we will need the beneficial owner(s) and company applicant(s) information, which includes: their full legal name, date of birth, complete current address, and an image of the company applicant’s photo ID which must be either a non-expired passport or a non-expired driver’s license. The applicant must file a copy of the document from which the unique identifying number was obtained, such as a photocopy of a passport or driver’s license. The applicant can also obtain a FinCEN Identifier after they have uploaded either their driver’s license or passport. The FinCEN Identifier allows a reporting company to simply use that number for any beneficial owner and any company applicant in lieu of having to upload a photocopy of your driver’s license or passport repeatedly.

VII.  Updating and Correcting Report

The CTA requires that the reporting company file any updates and corrections to their submitted disclosure if there are any. For updating reports, the reporting company has 30 calendar days after the date on which the change occurs to update the report. Similarly, a reporting company has 30 calendar days to correct a report after the company has “become aware” or had “reason to know” of the mistake or inaccuracy. A person will not be subject to civil or criminal penalty if the person has reason to believe that any report contains inaccurate information and voluntarily submits a report containing corrected information.

VIII.  Practical Example

To better understand the CTA’s reporting requirements, the following example is provided:

Strong Arm Brothers, LLC is a moving company owned equally by 3 members: Albert, Bob and Chariot Tours LLC. Chariot Tours LLC has one member, Donna, who owns 100% of the business. Under the CTA, Albert and Bob are direct owners of Strong Arm Brothers, LLC because each personally has a stake in the business greater than 25%. Donna is an indirect owner because she is considered to own more than 25% of Strong Arm Brothers, LLC due to her ownership of Chariot Tours LLC. Under the CTA, Albert, Bob, and Donna are each considered beneficial owners. All three must report their information to FinCEN for Strong Arm Brothers LLC.

If your company needs assistance with complying with the CTA, filing their report with FinCEN, or has questions about reporting requirements, do not hesitate to reach out to us.

Bruce E. Loren, and Lucia E. DeFilippo of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. Loren & Kean Law is a boutique law firm concentrating in construction law, employment law, and complex commercial litigation. Mr. Loren has achieved the title of “Board Certified in Construction Law” by the Florida Bar, exemplifying the Bar’s recognition of this expertise. The firm’s construction clients include owners/developers, general contractors, specialty contractors in every trade, suppliers and professional architects and engineers. Mr. Loren and Mrs. DeFilippo can be reached at bloren@lorenkeanlaw.com or ldefilippo@lorenkeanlaw.com or 561-615-5701.