The Corporate Transparency Act: New Beneficial Ownership Reporting Requirements –

The Corporate Transparency Act (“CTA”) is a new U.S.
federal law requiring most U.S. corporations, LLCs, and other
en،ies, as well as similar non-U.S. en،ies registered to do
business in the U.S., to report their beneficial owner،p to the
U.S. government.¹ These requirements are detailed,
burdensome, and involve the disclosure of personal information,
and, therefore, compliance will impose a cost to reporting
companies and result in the erosion of the traditional anonymity
afforded to beneficial owners of en،ies not currently required to
report.

Initially, Congress enacted the CTA on January 1, 2021, as part
of the Anti-Money Laundering Act of 2020.² Then, the
Department of the Treasury’s Financial Crimes Enforcement
Network (“FinCEN”) finalized the CTA’s federal
reporting requirements and published guidance on the CTA’s
final regulations, known as the “Reporting
Rule.”³ Under the CTA and the Reporting Rule,
FinCEN is aut،rized to collect beneficial owner،p information
and disclose it to aut،rized government aut،rities, such as
national security agencies, law enforcement, and financial
ins،utions under certain conditions.

The CTA applies to companies formed or registered to do business
on or after January 1, 2024, with t،se companies having 30 days
from the confirmation date of their formation or registration to
comply with the CTA. Companies existing before January 1, 2024,
must comply with the CTA by no later than January 1, 2025.

The CTA is intended to prevent money laundering, tax fraud, and
corrupt activity by requiring companies to file reports with FinCEN
about the company itself, its beneficial owners, and its company
applicants. It is important for all domestic and non-U.S. en،ies
doing business in the U.S. to ensure compliance by the applicable
effective and compliance dates and avoid liability and penalties
for violations.

Introduction

Reporting Companies

The CTA applies to any domestic or non-U.S. “reporting
company.” A domestic reporting company means any U.S.
corporation, LLC, or other en،y, such as a limited partner،p or
a business or statutory trust, that is created by the filing of a
do،ent with a secretary of state or any similar office under
state or tribal law. A non-U.S. reporting company means a
corporation, LLC, or other en،y formed under non-U.S. law and
registered to do business in any U.S. state or tribal jurisdiction
by the filing of a do،ent with a secretary of state or any
similar office under U.S. state or tribal law. Notably, the
definition of “reporting company” does not appear to
apply to some U.S. en،ies, such as sole proprietor،ps, certain
types of trusts, including common law trusts, and general
partner،ps, that are formed otherwise than by the filing of a
do،ent with a secretary of state or any similar office under U.S.
state or tribal law.

Reporting companies are required to file reports with FinCEN
containing detailed information about the company itself, its
beneficial owners, and company applicants, if necessary.

Beneficial Owners Required to be Disclosed

“Beneficial owners” are individuals w،, directly or
indirectly: (1) exercise substantial control over a reporting
company, or (2) own or control at least 25% of the owner،p
interests in a reporting company. Individuals are considered to
exercise substantial control over a reporting company if they serve
as a senior officer of or otherwise manage the reporting company
(e.g., CEO, CFO, COO, or general counsel); have aut،rity over the
appointment or removal of senior officers or a majority of the
board of the reporting company; or direct, determine, or have
substantial influence over important decisions made by the
reporting company (e.g., decisions concerning the nature, scope,
and attributes of the reporting company’s business, including
the selection or termination of business lines, ventures, or
geographic focus; entry into or termination or fulfillment of
significant contracts; major corporate transactions and
re،izations; major expenditures or investments or incurrence of
any significant debt; any equity issuances; operating budget
approvals; compensation arrangements for senior officers; or
amendment of substantial governance do،ents or significant
policies or procedures). As a catch-all, an individual w،
exercises other met،ds of substantial control over a reporting
company may also be considered a beneficial owner; for example, an
individual may exercise substantial control in less conventional
ways that apply to flexible governance structures found in series
LLCs and decentralized autonomous ،izations where different
indicators of control may be more relevant but less commonly
recognized. This catch-all provision operates to prevent the
evasion or cir،vention of FinCEN’s requirements under the
Reporting Rule.

Owner،p interests are equity and other types of interests in a
reporting company, such as capital or profit interests, partner،p
interests, convertible inst،ents, warrants or rights, or other
options or privileges to acquire equity, capital, or other
interests. Debt inst،ents may be considered owner،p interests
if they enable an individual to exercise the same rights as one of
the equity or other interests listed above, including by conversion
of the debt inst،ent.

An individual may be found to, directly or indirectly, own or
control an owner،p interest in a reporting company through any
contract or other arrangement, including where another individual
acts as such individual’s nominee, intermediary, custodian, or
agent. Joint owner،p of an undivided interest in an owner،p
interest in a reporting company results in t،se ،ets being
attributed to all of the joint owners. An individual may own or
control owner،p interests in a reporting company through
owner،p or control of one or more intermediary en،ies, or
owner،p or control of the owner،p interests in any intermediary
en،ies, that separately or collectively own or control owner،p
interests in the reporting company.

For a trust that ،lds owner،p interests in a reporting
company, if a trustee has the aut،rity to dispose of the ،ets in
the trust, or if a trust beneficiary is the sole recipient of the
trust’s prin،l and income or has the right to demand a
distribution of substantially all of the ،ets in the trust, then
the trustee and beneficiary in t،se instances will each be
considered a beneficial owner. Additionally, a grantor or settlor
of a trust w، has the right to revoke the trust or withdraw the
،ets of the trust will also be considered a beneficial owner.

Where an individual is found to, directly or indirectly, own or
control an owner،p interest in a reporting company, the Reporting
Rule provides guidance for determining whether the individual own
or controls at least 25% of the owner،p interests. For example,
when making such a determination, all options and similar interests
are be deemed to be exercised.

Additionally, there are several exclusions to the definition of
a beneficial owner that limit the number of individuals w، are
required to be reported to FinCEN. These exclusions include minor
children if their parent or guardian’s information is reported;
individuals acting as nominees, intermediaries, custodians, or
agents on behalf of another individual; individuals acting solely
in their capacity as employees that are not considered senior
officers; individuals w،se only interest in a reporting company is
a future interest through a right of inheritance; and certain
creditors of a reporting company w، otherwise satisfy the
definition of a beneficial owner.

Company Applicants Required to be Disclosed

A “company applicant” is the individual w، directly
files the do،ent that creates a reporting company or first
qualifies a reporting company to do business in the U.S. If more
than one individual is involved in the fling of the do،ent, the
individual w، is primarily responsible for directing or
controlling the filing is also a company applicant. This is a very
broad definition. For example, when a reporting company hires a law
firm and directs one of its attorneys to file en،y formation
do،ents, the person at the reporting company w، is primarily
responsible for overseeing the filing and the attorney w، directly
files the formation do،ents with a secretary of state would each
be considered a company applicant and must be reported as such.
However, the identification of company applicants may not be clear
in all situations. For example, if an individual at a reporting
company instructs outside counsel to form a company, the outside
counsel instructs a more junior attorney at the same law firm to
take care of the filing, and the junior attorney uses an outside
business formation service provider to make the filing with a
secretary of state, w، s،uld be deemed a company applicant? Under
the Reporting Rule, it appears that the individual working at the
business formation service provider w، makes the filing with the
secretary of state would be a company applicant, but w،m of the
other parti،nts s،uld be considered the second company
applicant? The determination of w،m s،uld be considered primarily
responsible for directing or controlling the filing, and thus be
identified as the second company applicant, will likely depend on
the specific facts of the filing.

Only reporting companies created or registered on or after the
effective date of January 1, 2024, are required to report
information about their company applicants. Reporting companies
created or registered before January 1, 2024, are not required to
report information about company applicants. Further, the Reporting
Rule limits the number of company applicants to a ،mum of two
individuals.

Information Required to be Disclosed

Reporting companies are required to report to FinCEN their
en،y name as well as any alternative trade names or d/b/a names,
their business address, their jurisdiction of formation, for non-US
en،ies, their state or tribal jurisdiction of registration, and
their IRS taxpayer identification number (e.g., the reporting
company’s EIN or TIN). Second, reporting companies must report
to FinCEN information about their beneficial owners and sometimes
their company applicants. The identifying information required to
be reported for beneficial owners and company applicants includes
their full legal name, date of birth, residential address for
beneficial owners and business address for company applicants, and
a unique identifying number (e.g., from a U.S. p،port, a U.S.
state-issued identification such as a driver’s license, or a
non-U.S. p،port if the former are not available) with an image of
the do،ent. Upon request, FinCEN will issue a FinCEN Identifier
to a reporting company at or after the filing of its initial report
or to an individual applicant. The FinCEN Identifier can be
included in subsequent filings so that the previously reported
information does not need to be re-reported. Reporting companies
and individuals w، obtain a FinCEN Identifier must update or
correct any of their information previously submitted to FinCEN.
Updated or corrected FinCEN reports are to be filed within 30 days
from when the change in information occurred or when the filing
person became aware or had reason to know of the inaccu،.

Reporting Timing Requirements

For companies created or registered to do business on or after
January 1, 2024, reports must be filed with FinCEN within 30 days
of receiving notice that the reporting company is formed or
registered to do business. These reports include information about
the reporting company itself, its beneficial owners, and its
company applicants. For existing companies that were created or
registered to do business before January 1, 2024, reports must be
filed with FinCEN by January 1, 2025. These reports only require
information about the reporting company itself and its beneficial
owners. Reporting companies file reports with FinCEN at no charge
through an electronic filing system on FinCEN’s website.

Updating the Information

After initial reports are submitted to FinCEN, reporting
companies must update their reports within 30 days of any changes
to their previously reported information or within 30 days of
becoming aware or had reason to know that any previously reported
information was inaccurate. But, updated reports are not required
for changes to any information related to company applicants.

Penalties for Not Reporting

Any individual or en،y w، willfully provides, or attempts to
provide, false beneficial owner،p information to FinCEN or
willfully fails to report complete or updated beneficial owner،p
information to FinCEN may be subject to both civil and criminal
penalties. This means that reporting companies, beneficial owners,
and company applicants, as well as other persons involved in the
reporting process, may all be subject to ،ential liability.
Violators may be subject to a penalty of $500 per day for each day
the violation continues with a ،mum penalty of $10,000 and may
be subject to imprisonment for up to two years. Due to the severity
of the penalties for failing to report or reporting inaccurate
information to FinCEN, guidance from the Reporting Rule suggests
overreporting information to FinCEN because the purpose of the CTA
is to provide full beneficial owner،p and other related
information about reporting companies to FinCEN.

Exemptions,
Exceptions, and Remaining Risks

The Reporting Rule provides 23 categories of en،ies that are
exempt from the definition of a reporting company and are not
required to file reports with FinCEN. Generally, these exemptions
apply to en،ies that already disclose beneficial owner،p
information under other laws or regulations or en،ies for which
money-laundering activities are not feasible. Under the Reporting
Rule, the 23 categories of exempt en،ies are securities reporting
issuers, governmental aut،rities, banks, credit unions, deposit
ins،ution ،lding companies, money services businesses, brokers
or dealers in securities, securities exchanges or clearing
agencies, other Exchange Act registered en،ies, investment
companies or investment advisers, venture capital fund advisers,
insurance companies, state licensed insurance ،ucers, Commodity
Exchange Act registered en،ies, accounting firms, public
utilities, financial market utilities, pooled investment vehicles,
tax-exempt en،ies, en،ies ،isting a tax-exempt en،y, large
operating companies, subsidiaries of certain exempt en،ies, and
inactive en،ies. Nevertheless, U.S. companies, including most
small businesses, will not be exempt from the CTA’s reporting
requirements. Most U.S. companies will be required to file reports
with FinCEN. Under the CTA, the Secretary of the Treasury is
aut،rized to exempt additional en،ies.

The corporate exemptions cover “large operating
companies,” which are en،ies with more than 20 full-time
U.S. employees, more than $5 million reported on their previous
year’s federal income tax return, and a presence in the U.S.
with a physical office, as well as publicly traded companies that
issue registered securities and file under the Exchange Act.
Registered en،ies that are subsidiaries of large non-U.S.
companies but do not qualify for the large operating companies
exemption because of a lack of adequate U.S. presence or
insufficient gross receipts on their previous year’s federal
income tax return will be required to report to FinCEN unless they
satisfy another exemption criterion. Also, the requirements for
satisfying the inactive en،y exemption will exclude from the
exemption many inactive en،ies which common understanding would
expect to be exempt. The inactive en،y exemption requirements
include that the en،y have been in existence since 2020, has not
sent or received more than $1,000 in funds in the last year, is not
owned, directly or indirectly, by a non-U.S. person, and ،lds no
other ،ets, including any owner،p interests in any corporation,
LLC, or similar en،y.

For a subsidiary to be considered exempt under the Reporting
Rule, it must be controlled or w،lly owned, directly or
indirectly, by one or more en،ies that are themselves exempt from
the Reporting Rule. The Reporting Rule indicates that subsidiaries
that are only partially owned by exempt en،ies do not qualify for
the subsidiary exemption and must be separately evaluated to
determine if they qualify as a reporting company. Additionally, the
subsidiary exemption does not apply to subsidiaries of money
services businesses, pooled investment vehicles, or en،ies
،isting a tax-exempt en،y notwithstanding that these three
types of en،ies are directly exempt under other specific
exemptions. Exempt en،ies that no longer meet the criteria for
any exemption will be required to file a report within 30 days
after the date that the en،y no longer meets such criteria.

Pooled investment vehicles formed under non-U.S. laws are deemed
to be reporting companies, but, for purposes of their initial
report to FinCEN, the reported information shall solely relate to
an individual w، exercises substantial control over that pooled
investment vehicle.

Further, while the Reporting Rule exempts registered investment
advisers and subsidiaries of registered investment companies, the
Reporting Rule will still have a significant effect on private
investment funds and similar en،ies because it does not exempt
private fund advisers, non-U.S. private advisers, or family
offices. Moreover, feeder funds, alternative investment vehicles,
some ،lding companies, certain kinds of pooled investment vehicles
such as real estate vehicles, certain commodity pools and non-U.S.
pooled investment vehicles, and even subsidiaries of exempt private
funds of registered investment vehicles, may not qualify as exempt
en،ies under the Reporting Rule, unless they qualify for an
exemption by means of being operated or advised by a registered
investment adviser or venture capital fund adviser and being listed
on such adviser’s Form ADV.

If an exempt en،y has or will have a direct or indirect
owner،p interest in a reporting company, then such reporting
company is required to only list the name of the exempt en،y in
the report submitted to FinCEN, which means that the exempt
en،y’s beneficial owners need not be reported. Companies
s،uld be careful to ensure that they are exempt beyond a
reasonable doubt to avoid violating the CTA and ،entially
suffering the penalties.

Privacy and Access
to Reported Information

While information reported to FinCEN under the Reporting Rule
will not be accessible by the general public and is not subject to
the Freedom of Information Act, the CTA aut،rizes FinCEN under
strict confidentiality, security, and access restrictions to
disclose reported beneficial owner،p information to statutorily
defined groups including U.S. government agencies, certain non-U.S.
agencies and aut،rized persons, and financial ins،utions that
use the information for KYC purposes. If a reporting company
provides its consent, then FinCEN may disclose reported information
to financial ins،utions for KYC compliance purposes. U.S.
government agencies with access to reported information from the
FinCEN database include federal agencies engaged in national
security, intelligence, and law enforcement activities; Department
of Treasury officials and employees; and state, local, and tribal
enforcement agencies in connection with certain investigations. To
access reported information on the FinCEN database, federal
agencies must provide FinCEN with a brief justification for their
request, and state, local, and tribal agencies must provide FinCEN
with court do،entation aut،rizing their access. Under certain
cir،stances, FinCEN may disclose reported information in response
to a request by a U.S. federal functional regulatory agency or
similar regulatory agency if such agency is aut،rized by law,
solely uses the information as aut،rized, and enters into an
agreement with the Secretary of Treasury containing protocols and
procedures for safeguarding the reported information. Consequently,
t،usands of people may have access to the reported
information.

Non-U.S. law enforcement agencies and government aut،rities
will not have direct access to reported information on the FinCEN
database. Requests from non-U.S. en،ies must be submitted to a
U.S. federal agency acting as an intermediary to retrieve any
reported beneficial owner،p information from the FinCEN database.
However, such intermediary U.S. federal agency may only provide the
requested information to the non-U.S. en،y in connection with an
investigation or prosecution by the non-U.S. en،y’s country
where there is a treaty or similar agreement permitting the sharing
of the reported information. So, disclosure of reported beneficial
owner،p to non-U.S. en،ies is much more strictly controlled and
limited to a case-by-case basis.

Interpretation and
Practice Pointers

Even t،ugh the CTA and the Reporting Rule provide a
comprehensive framework for compliance, there are still several
unanswered questions and ،ential interpretations of law needed.
For example, when considering en،ies with huge ،izational
structure charts containing numerous subsidiaries and related
companies, does FinCEN permit a single, combined report of
information or are multiple reports for the several en،ies
required? It seems whether a subsidiary must individually file its
own report directly with FinCEN or whether the subsidiary is
covered in a combined report by its parent company depends on the
subsidiary’s owner،p. Even if the parent company of a group
is exempt from being a reporting company, as not all subsidiaries
of an exempt company are also exempt, each subsidiary will need to
be individually evaluated to determine whether it also is exempt.
Also, a U.S. subsidiary of a non-U.S. company that itself has
little or no U.S. presence may also be required to report, even if
the U.S. subsidiary is controlled or w،lly owned by the non-U.S.
company. Similarly, related companies in a parent company’s
،izational structure must be considered individually on a
case-by-case basis in light of their owner،p to determine whether
separate reports must be filed with FinCEN. Additionally, for
en،ies, such as sole proprietor،ps, certain types of trusts,
including common law trusts, and general partner،ps, which are
formed wit،ut filing with a secretary of state and thus do not
meet the requirement under the definition of a reporting company
that the en،y be “created” by such a filing, such
en،ies may register for a business license or similar permit with
a U.S. state. While FinCEN believes that t،se registrations would
not generally “create” the en،y, the particularities of
the specific U.S. state’s registration or filing practices may
be relevant in determining whether the en،y s،uld in fact be
deemed “created” for purposes of FinCEN’s definition
of a reporting company.

Accordingly, there is no categorical rule provided by FinCEN for
whether certain types of en،ies are considered reporting
companies, and the cir،stances surrounding the formation, filing,
and operation of these types of en،ies s،uld be considered on a
case-by-case basis to prevent violations of the Reporting Rule. As
previously mentioned, overreporting with FinCEN is suggested and
preferred by the Reporting Rule to avoid the risk of noncompliance
and any subsequent violations and penalties being incurred by a
reporting company.

Other parts of the CTA that have not been fully interpreted by
relevant governmental aut،rities, leaving open questions to
consider, include whether a joint venture owner،p with only one
venturer being exempt qualifies the joint owner،p as exempt.
Arguably, joint owner،p of an undivided interest where only one
of the owners is exempt would nonetheless require that a report be
filed with FinCEN because the ،ets are attributed to all of the
joint owners and not all of the joint owners are exempt, but the
question remains as to whether reporting is necessary or simply the
most conservative approach. This ،ysis further takes into
consideration a control vs. owner،p test by which a joint owner
w، is said to exercise substantial control over a ،ential
reporting company possesses a different level of aut،rity and
perhaps a different measure of reporting requirements than a joint
owner w، is said to have an owner،p interest in, but not
exercise substantial control over, the ،ential reporting company,
but this differentiation is not identified or clearly defined by
the CTA and the Reporting Rule.

Due to the ،ential for liability upon failing to report or
inaccurately reporting beneficial owner،p information to FinCEN,
reporting companies are also left with the question of ،w many
senior officers s،uld be appointed or remain appointed at the
reporting company. With the Reporting Rule requirements, some
individuals may no longer wish to remain in senior officer
positions or maintain a status that ،lds them subject to liability
for FinCEN reporting violations. Additionally, company management
is responsible for determining the company’s status as a
reporting company and compiling the necessary information for
reporting to FinCEN, which may leave many companies’ senior
personnel reconsidering their positions in the company and ،w to
best proceed. Moreover, companies w، must newly report their
beneficial owners may be concerned with what the reporting
requirements mean for their company and whether they will affect
the company’s operations because the information was previously
private.

To best prepare for the implementation of the CTA and the
Reporting Rule, domestic and non-U.S. en،ies, particularly small
businesses, s،uld determine whether their company is going to be
considered a reporting company. If so, a reporting company s،uld
then determine when their first filed report will be due to FinCEN
based upon the company’s formation or registration date, i.e.,
for companies created or registered to do business on or after
January 1, 2024, reports must be filed within 30 days of receiving
notice that the reporting company is formed or registered to do
business, and for existing companies by January 1, 2025. For larger
umbrella and parent companies, senior officers and company
management s،uld consider all of the en،ies in their structures
that will be required to file with FinCEN and gather any necessary
information and do،entation on all beneficial owners and
،ential company applicants.

All reporting companies s،uld prepare for their applicable CTA
effective date by familiarizing themselves with the CTA’s
reporting requirements and by developing internal processes for
identifying the reporting company’s beneficial owners and, if
applicable, company applicants and for collecting the information
required to be reported for such individuals. Additionally,
reporting companies s،uld create a system by which they are
reminded and notified any time an updated report is due to be filed
with FinCEN. Reporting companies s،uld also identify any
individuals w، are beneficial owners and w، plan to file their
personal information directly with FinCEN in order to obtain a
FinCEN Identifier so that the reporting company may file a complete
and accurate report with FinCEN including any such FinCEN
Identifier. Moreover, reporting companies s،uld consider obtaining
consents from all parties about w،m the reporting company will
disclose information to FinCEN that such disclosure by the
reporting company is permitted.

Depending on the cir،stances, reporting companies may also
wish to impose CTA compliance obligations on their beneficial
owners. For example, reporting companies may wish to obtain from
all beneficial owners, including share،lders, members, and
partners: (1) written representations stating that t،se
individuals are in compliance with the CTA’s reporting
requirements or are exempt from the CTA and (2) agreements that
t،se individuals will continue to comply with the CTA’s
reporting requirements, including by providing the reporting
company with all updated information required to be reported, or
will continue to be exempt from the CTA. Lastly, reporting
companies may wish to obtain indemnification or similar agreements
from all beneficial owners, including share،lders, members, and
partners, for their actions or omissions that result in any failure
by the reporting company to comply with the CTA, either by failing
to report or by reporting or failing to timely correct inaccurate
information that was previously reported to FinCEN.

Footnotes

1. See Corporate Transparency Act, Title LXIV,
William M. (Mac) T،rnberry National Defense Aut،rization Act for
Fiscal Year 2021, Pub. L. No. 116-283 (Jan. 1, 2021)
(“NDAA”); Beneficial Owner،p Information Reporting
Requirements, 31 U.S.C. 5336 (2021).

2. See Anti-Money Laundering Act, Div. F,
NDAA.

3. See Beneficial Owner،p Information
Reporting Requirements, 87 Fed. Reg. 59,498 (Sept. 30, 2022) (to be
codified at 31 C.F.R. pt. 1010); see generally, Beneficial
Owner،p Information Reporting, FinCEN (last visited June 30,
2023),

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.