Corporate Transparency Act

Attorneys on Holland & Knight's Corporate Transparency Act Team have closely followed the CTA since its enactment and are familiar with its requirements and ramifications. Below are answers to some basic questions regarding the CTA. Our lawyers stand ready to assist clients in determining the specific impact of the new law on their organizations and transactions, as well as actions to take to comply with the CTA. 

What Is the CTA?

The CTA is first-of-its-kind federal legislation that establishes a national registry of beneficial ownership information about certain domestic and foreign companies. 

What Will the CTA Do?

It will require certain entities, called Reporting Companies, to report personal identifiable information (PII) about the individuals, called Beneficial Owners, who directly or indirectly control or own a Reporting Company. 

Why Report Beneficial Ownership?

To combat the proliferation of anonymous shell companies that facilitate the flow and sheltering of illicit money in the United States. 

Is the Registry Accessible to the Public?

No, the public cannot access the information on the registry, called the Beneficial Ownership Secure System (BOSS). The information is accessible by governmental authorities, financial institutions and financial institution regulators.

What Is a Reporting Company?

A Reporting Company is a corporation, LLC or similar entity. A Reporting Company can be Domestic or Foreign. A Domestic Reporting Company is an entity created by the filing of a document with a secretary of state or a similar office under the law of a state or Indian tribe. A Foreign Reporting Company is an entity formed under foreign law that has registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the law of a state or Indian tribe. Not all activities in the U.S. require registration, which varies among states. 

Are Any Entities Out of Scope or Exempt from Reporting?

Yes, out of scope entities include sole proprietorships (not an entity), general partnerships, unincorporated associations, common-law trusts, and foreign entities not registered to do business in a state or Indian tribe. Entities exempt from reporting include larger, publicly owned and regulated companies. There are 23 categories of exemptions. 

Who Is a Beneficial Owner?

A Beneficial Owner refers to an individual who satisfies the conditions of either the Substantial Control Test or the 25 Percent Ownership Test. Under the Substantial Control Test, an individual is a Beneficial Owner if the individual 1) is a senior officer of the Reporting Company, such as the CEO, chief operating officer (COO), chief financial officer (CFO), general counsel (GC) or a manager of an LLC, 2) has authority over the appointment or removal of senior officers or a majority of the board of directors, 3) has substantial influence over decision-making of the entity or 4) has a significant role in decision-making of the entity. The Substantial Control test does not require ownership in the entity, but requires only authority and decision-making power. Under the 25 percent Ownership Test, an individual is a Beneficial Owner if that individual controls at least 25 percent of the ownership interest in an entity. Ownership interests generally refer to arrangements that establish ownership rights in the Reporting Company, such as shares of stock or more complex instruments. The tests apply if control or ownership interests are held directly or indirectly and are applied in an expansive manner. 

What Type of Information Must a Reporting Company Disclose?

A Reporting Company is required to report information about itself (such as its name, address, jurisdiction of formation), information about its Beneficial Owners (name, date of birth, current residential address, a unique ID number and issuing jurisdiction, such as a current driver's license or passport, and an image of the document from which the unique ID number was obtained). For Reporting Companies formed/registered in 2024 and thereafter, in addition to the reporting of information about the Reporting Company and its Beneficial Owners, information about its Company Applicants must be reported. A Company Applicant is the individual that directly files the document that creates or registers the Reporting Company and the individual who is primarily responsible for directing or controlling the filing of the document, if more than one individual is involved in the filing. 

What Types of Reports Are Required?

There are Initial Reports, Updated Reports and Corrected Reports, all of which must be sent electronically to the Financial Crimes Enforcement Network (FinCEN), a unit of the U.S. Department of the Treasury. There are specified dates for filing Initial Reports, depending on whether the Reporting Company was formed/registered prior to Jan. 1, 2024, or thereafter, as well as for Updated Reports and Corrected Reports. 

What Happens if Reports Are Not Filed?

Significant civil and criminal penalties can be imposed for non-compliance, to include a failure to report, failure to update beneficial ownership information and failure to correct inaccurate beneficial ownership information. Although the CTA imposes reporting obligations on Reporting Companies, penalties for reporting violations will fall principally on controlling individuals of the entity if any controlling individual willfully causes non-compliance with the reporting provisions. 

What Are the Ramifications of the CTA on Reporting Companies?

The CTA will impose significant administrative burdens on Reporting Companies to properly and timely comply with the reporting obligations. This will require Reporting Companies to adopt new processes, procedures and agreements, as well as to review the content of existing or new organizational and transactional documentation for CTA compatibility. Holland & Knight attorneys are available to provide counsel on all of these matters.