CTA Reporting 

The Corporate Transparency Act (CTA)

Before the enactment of the Corporate Transparency Act, the U.S. had been criticized for having lax regulations regarding identifying beneficial owners of corporations. Anonymous shell companies were used as vehicles for various illicit activities, including tax evasion, money laundering, and fraud. 

The lack of transparency in corporate ownership structures allowed individuals to hide their identities behind layers of legal entities, making it difficult for law enforcement agencies to trace and combat financial crimes. 

The primary intent behind the Corporate Transparency Act was to establish a more robust framework for collecting and maintaining information about the beneficial ownership of corporations. The CTA aimed to strike a balance between privacy concerns and the need for increased transparency in corporate structures.

Key Provisions of the CTA 

Beneficial Ownership Reporting

One of the key provisions of the Corporate Transparency Act is the requirement for certain entities to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Beneficial owners are individuals who directly or indirectly own a significant interest in or exert substantial control over a reporting company. 

Who is Considered a Beneficial Owner?

The Act defines a beneficial owner as an individual who, directly or indirectly, exercises substantial control over or owns or controls at least 25% of the ownership interests in the corporation. 

Substantial control is determined by meeting any of the following criteria: 

• An individual who is a senior officer
• Someone who has the authority to appoint or remove certain officers or a majority of directors
• Someone who is another important decision-maker
• Someone has another form of substantial control 

This likely includes the President, CEO, CFO, COO, GC, and other executives. Decision-makers may consist of individuals with the authority to determine the business's nature and scope, sell, transfer, or lease principal assets, or amend organizational documents or corporate policies. These definitions may cast a broad net that each reporting company needs to carefully consider before filing.

Reporting Obligations

Entities falling within the scope of the Corporate Transparency Act must submit beneficial ownership information to FinCEN, including each beneficial owner's name, address, date of birth, and identification number. Additionally, reporting companies must provide updates to FinCEN within specific timeframes should any changes to the reported information occur.

Here are some criteria to determine who needs to file a report: 

• Covered entities:
  • Corporations
  • Limited Liability Companies (LLCs)
  • Partnerships
  • Trusts registered with local, state, federal, tribal, or other regulatory bodies
• Exclusions and exemptions: 
  • Publicly traded companies
  • Certain financial institutions
  • Certain large operating companies
  • Certain entities with substantial reporting requirements

FinCEN Database

The collected beneficial ownership information is stored in a confidential FinCEN database. This database is not accessible to the public but can be accessed by authorized government agencies, such as law enforcement and national security agencies, to investigate and combat financial crimes.

Are There Exemptions to CTA Reporting?

Certain types of entities are exempt from the reporting requirements, including publicly traded companies, certain financial institutions, certain large operating companies, and entities already subject to robust disclosure requirements. 

These exemptions are designed to avoid unnecessary regulatory burdens on entities already subject to transparency measures. Unless an exemption applies, all entities registered anywhere in the United States likely must comply. We recommend you consult with your legal counsel to verify your reporting requirements or contact us for a consultation.

Implementation Challenges

Some critics argue that the reporting requirements may impose additional administrative burdens on small businesses and raise concerns about privacy and the potential misuse of collected information. Striking the right balance between transparency and confidentiality remains a complex task. 

For persons reported on many reports, we can assist you in obtaining a FinCEN identifier. This number can be used when reporting your ownership information instead of listing your personal address and information on each report.  This lowers compliance cost by not having to update every report if information changes on just that individual.  For example, Mr. Dower lists his FinCEN identifier on the beneficial ownership information reports for Dallas Financial Solutions, Inc., CTA Reporting, LLC, and other reporting companies.  If he moves, he will only need to update his home address once – on the FenCEN identifier record – not several times.

International Implications

The enactment of the Corporate Transparency Act aligns with global efforts to combat money laundering and enhance financial transparency. The international community has recognized the importance of knowing the ultimate beneficial owners of legal entities to prevent and detect illicit economic activities.