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The Corporate Transparency Act, enacted in 2021, went into effect on January 1, 2024. Under the CTA, many businesses registered and operating in the U.S., including small businesses, are now required to file corporate transparency reports identifying certain information. Businesses covered by the CTA’s reporting requirements include corporations, limited liability companies or similar entities created by filing registration documents with a secretary of state or formed under the laws of another country and registered to do business in the U.S.  

The filing of registration documents with a secretary of state is the act that triggers a covered business’ duty to file a transparency report under the CTA. To comply with the CTA, such covered businesses must provide their legal name and a current U.S. address, as well as a taxpayer identification number. Additionally, businesses must identify the jurisdiction in which they were incorporated or registered.  

Disclosures are also required about a company’s “beneficial owners”.  Under the CTA, a person qualifies as a beneficial owner if he or she has a significant direct or indirect ownership share in the business. Criteria for identifying a beneficial owner include, for example: 1) a person with at least a 25% ownership interest in the business or 2) a person with strong influence over the entity’s business decisions. Factors determining whether a person fits into the latter category include but are not limited to that individual’s authority to make large purchases, sign contracts, open bank accounts, hire outside business services, and hire employees.  

The purpose of the CTA is to combat illicit activity, including money laundering, tax fraud, and financing of terrorism. The beneficial ownership information will be used to create a database the government can rely upon in furtherance of the CTA’s aims. All collected information will be held by the U.S. Department of Treasury’s Financial Crimes Enforcement Network, or FinCEN.   

The specific disclosure requirements are determined by whether a business was formed before or after January 1, 2024. For businesses established after January 1, 2024, the disclosure must include information about the business, its beneficial owners, and its company applicants. By contrast, businesses established before January 1, 2024 may omit information about their company applicants.  

For most covered businesses, the filing deadline is January 1, 2025. The CTA imposes serious penalties, including fines of up to $10,000 or even imprisonment, for failure to file by the deadline or to timely update previously filed information.  

Not all entities are required to report under the CTA. Exempt entities include non-profit organizations, inactive entities, and large operating companies. The CTA defines large operating companies as those with more than 20 employees, a physical office in the U.S., and over $5 million in gross receipts or sales.   

After the initial filing, updated filings may be required if, for example, a beneficial owner changes their primary address or changes their last name after a marriage or divorce. Additionally, changes that result in the addition or removal of beneficial owners from the business structure also require additional filings. Corrections or updates must be filed within 30 days of the date of the change. There is no filing fee for the initial filing or for any subsequent filings.  

If you are the beneficial owner of a covered business or have questions about what you are required to disclose under the CTA, contact Natalie Klyashtorny by email at natalie.klyashtorny@nochumson.com or by phone at ‭(215) 600-2852‬ for a consultation.