The Corporate Transparency Act (CTA) is a sweeping new federal law aimed to combat money laundering, tax fraud, and other illicit activities by mandating the disclosure of certain information related to the beneficial owners and controllers of most U.S. domestic entities and certain non-U.S. entities doing business in the United States.
All applicable “reporting companies” have a limited timeframe to submit a beneficial ownership information (BOI) report to the Financial Crimes and Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
Since going into effect on January 1, 2024, the CTA has sparked many conversations and questions from U.S. business owners, as well as a federal court ruling against the CTA’s constitutionality and enforceability with respect to the specific plaintiffs in that case. Notwithstanding the federal court decision, FinCEN has indicated that it plans to implement and enforce the CTA against companies not subject to the federal court’s ruling. Thus, nearly all reporting companies remain subject to new law and its implementing regulations.
Maintaining compliance and timely filing a BOI report with FinCEN is critical to avoid costly fines and penalties. If you’re unsure where to get started, consider this Corporate Transparency Act checklist.
Corporate Transparency Act Checklist Step #1: Create a list of all the entities that you own or control, identify their subsidiaries, and gather organizational documents
CTA analysis must be performed with respect to every entity that you own, control, or otherwise have a substantial interest in. Additionally, a separate BOI report must be filed for each entity unless an exemption applies. So, the first step is to get organized. Identify all your entities and subsidiaries and locate the relevant organizational documents (e.g., operating agreements; bylaws; shareholders’ agreements). Doing so will give you a sense of how many reports need to be filed and the beneficial owners that need to be identified therein.
Corporate Transparency Act Checklist Step #2: Understand if your business is considered a “reporting company” or is exempt
Do you need to file a report? Most corporations, LLCs, LPs, and similar entities formed or registered to do business in the U.S. are considered reporting companies under the CTA, with notable exemptions including, without limitation: nonprofits that have secured federal income tax exemption as 501(c)(3) organizations, banks, credit unions, insurance companies, and “large operating companies,” namely: entities that (i) employ more than 20 full-time employees in the U.S., (ii) have an operating presence at a physical office in the U.S., and (iii) have filed a federal return in the U.S. for the previous year demonstrating more than $5 million of gross receipts or sales, excluding gross receipts or sales from sources outside the U.S. A subsidiary that is 100% owned or controlled by an exempt entity is also considered exempt under the CTA’s subsidiary exemption. If a subsidiary does not satisfy the aforementioned criteria or otherwise qualify for a separate CTA exemption, however, that subsidiary is considered a reporting company and must file a BOI report. To confirm your entity’s status as a reporting company or an exempt business, consult FinCEN’s Small Entity Compliance Guide or contact your attorney.
Corporate Transparency Act Checklist Step #3: If you determine you are a reporting company, identify your “beneficial owners”
The CTA defines beneficial owners as those who directly or indirectly: (i) exercise substantial control over the reporting company (such as a senior officer of a corporation, a manager of an LLC, those with ability to appoint or remove officers or a majority of directors, and those who have substantial influence over important decisions); or (ii) own or control at least 25% of the reporting company’s ownership interests.
Importantly, the CTA requires companies to trace beneficial ownership down to the individual level. If, for example, 50% of the ownership interests in Company A are owned by Company B, and the remainder by Individual C, then, in addition to identifying Individual C as a beneficial owner on its BOI report, Company A must determine the equity owners of Company B, and whether those equity owners qualify as beneficial owners by virtue of their indirect equity interest in Company A through Company B. Businesses with owners that include trusts also face unique issues. Although trusts do not constitute “reporting companies” under the CTA unless on file with a secretary of state or similar agency, if a trust has substantial control or 25% ownership interest in a reporting company, then the following persons associated with such trust constitute beneficial owners that must be reported on the Company’s BOI report: (i) the trustee or other individual with the authority to dispose of the trust’s assets; (ii) the beneficiary who is the sole permissible recipient of the trust’s income and principal or who has the right to demand a distribution of or withdraw substantially all of the trust’s assets, if any; and (iii) the grantor or settlor who has the right to revoke or otherwise withdraw the trust’s assets, if any. Consequently, companies owned or controlled by trusts may need to involve trust and estates counsel to review relevant trust agreements. In sum, identifying beneficial owners may not be straightforward for most entities. Multi-tiered entities and entities with indirect owners in particular should consult legal counsel to navigate the complexities inherent in the CTA rules.
Corporate Transparency Act Checklist Step #4: Obtain personal information/government ID or a FinCEN identifier from each beneficial owner
The CTA either requires reporting companies to submit certain personal information (e.g., name and home address), together with a copy of a government issued ID, for each beneficial owner on their BOI reports, or the FinCEN ID of each beneficial owner. However, the preference is for a reporting company to obtain and submit the FinCEN ID of its beneficial owners. The CTA requires reporting companies to report any changes to their BOI reports within 30 days of the relevant change. So, if a company included the home address of their CEO in its initial BOI report and that CEO later moved, the company would need to submit an updated report with the new home address within 30 days. If the company were to have instead provided the CEO’s FinCEN ID in its initial report, the onus would be on the CEO, not the company, to update his/her home address directly with FinCEN.
Corporate Transparency Act Checklist Step #5: Establish a process to collect beneficial ownership information
Because the CTA isn’t going away, companies ought to amend their operating, shareholder and/or subscription agreements to ensure existing owners and new investors have a contractual obligation to provide personal identifying information or a FinCEN ID to the company, and to notify the company of any changes. Companies should also consider imposing identification obligations on equity holders in the event the holder refuses to provide the information required to file a BOI report or willfully provides false information. Without imposing these contractual obligations, a company may face resistance from its beneficial owners to provide the requisite information, and be caught between a rock and a hard place in the event it fails to obtain all BOI – do I submit an incomplete BOI report without certain beneficial owner information, or fail to timely file my report until I obtain the requisite BOI? An experienced business attorney can help you update your documents, as well as keep them on file.
Corporate Transparency Act Checklist Step #6: Maintain compliance through a single point of contact; file your BOI reports
Depending on your industry, you may have a designated compliance person, but for most reporting companies, a specific officer or administrator should collect information from beneficial owners in order to file initial and updated BOI reports. When beneficial ownership information changes (e.g. sale of a business, merger, death, new addresses), an updated BOI report must be submitted within thirty (30) days of the change. Currently, FinCEN’s BOI portal does not allow companies to view or update their prior BOI reports. Reporting companies who need to report changes must instead submit an entirely new, complete report. Companies should therefore save all prior BOI reports, personal identifying information/government IDs and applicable FinCEN IDs in a secure place. 
As a reminder, reporting companies formed prior to January 1, 2024 must file their BOI reports by December 31, 2024. Reporting companies created on or after January 1, 2024, and before January 1, 2025, must submit their BOI reports within ninety (90) days of their formation date. Lastly, reporting companies created on or after January 1, 2025, must submit their initial BOI reports within thirty (30) days of their formation date.
Beyond your Corporate Transparency Act Checklist
For businesses just learning about the CTA requirements, this checklist may seem overwhelming. Determining reporting obligations, exemption eligibility and beneficial owners is a fact-specific analysis that likely requires the assistance of professional advisors such as lawyers and accountants. Do not wait until the end of the year to determine your responsibilities, as you risk significant fines and even criminal penalties for non-compliance.
As noted in step #5, one of the most helpful services from an attorney can be updating the governing documents for your businesses to reflect new obligations created by the Corporate Transparency Act. Please check in with your attorney or a member of FLB’s Corporate, Business & Banking Team to help you navigate the new CTA rules.
