Understanding the Impact of the Corporate Transparency Act

Did you miss our clinic with Bill Richter? Check out the recording above and a recap below!

The Corporate Transparency Act (CTA), effective January 1, 2024, mandates the creation of a nationwide database of individuals who are deemed to be “beneficial owners” of “reporting companies”. Administered by the Financial Crimes Enforcement Network (FinCEN) under the U.S. Department of the Treasury, the CTA is intended to help prevent and combat money laundering, tax evasion, and terrorism financing by giving law enforcement, the intelligence community, regulators and financial institutions access to beneficial ownership information and making it harder for bad actors to hide their identities and engage in illegal activities like through businesses, shell companies, holding companies, nonprofits and the like. There’s a lot more to it that we recommend you read up on yourself, but here's a short summary of its key aspects:

Who does it apply to?

  • Reporting companies: This includes the more than 32 million corporations, limited liability companies (LLCs) formed or registered in the US, regardless of when formed or their size or activity. While there are some exceptions, this could easily be your company, even if you are the sole shareholder or member, and even if your business has been dormant for a few years.

  • Beneficial owners: These are individuals who ultimately exercise “substantial control” over a reporting company, such as President, CEO, CFO and COO, and people who direct, determine or have substantial influence over vaguely described “important decisions” (including amendments to charter and bylaws, major expenditures, issuances of equity, etc.). Beneficial owners are also individuals “own or control” at least 25% of the ownership interests of a reporting company, taking into account their shares, convertible notes, SAFE’s, vested and unvested options and other rights. While there are many rules, as well as uncertainties, this could easily be you.

  • What information needs to be reported?

  • Each reporting company must file a report with FinCEN's central registry, including:

    • Each beneficial owner’s Name, date of birth, residential address, and unique identifying number (e.g., passport, driver's license including an image of each beneficial owner) or a FinCEN identifier number applied for by the beneficial owner by providing all of this to FinCEN after January 1, 2024.

    • The company’s full legal name, all DBA’s used, its formation date and jurisdiction, and TIN/EIN.

    • In the event any of this information changes, the reporting company must file an updated report within 30 days of any of the changes.

When Does the CTA require reports to be made? 

  • Reporting Companies in existence as of 12/31/23 will have until 12/1/25 to file their initial reports

  • Companies/LLC’s formed on or after January 1, 2024 will have only 90 days to make their initial report.

  • What should you do? You can:

  • Listen to the presentation (which is about 45 minutes and is not legal advice). 

  • Review the additional resources below. 

  • Begin to review your company’s capital and governance structures, financing documents, and prepare for due diligence and the invariable reps and warranties that the CTA will spawn. 

  • Begin to think about who in your company will be responsible for collecting and protecting the information from unauthorized access, disclosure, use, etc.), socializing all of this with your beneficial owners (and they, theirs), filing the reports, and being liable under the CTA.

Questions? Contact Bill Richter, Solo Corporate and Transactional Lawyer: bill[at]richterlaw.com

Additional resources:

Malina Longbill richter, corporate law