Corporate Transparency Act (CTA) Part 1: New Reporting Requirements for Small Businesses

Small businesses have always been the backbone of the American economy. Unfortunately, with the introduction of the Anti-Money Laundering Act of 2020 (AMLA), there is now an added layer of regulatory compliance required for small business owners in the realm of financial transparency. The AMLA established the Corporate Transparency Act (CTA), which has brought about pivotal changes in the way businesses report their ownership structures to the Financial Crimes Enforcement Network (FinCEN).

The CTA seeks to uphold the integrity of the U.S. financial system, prevent illicit activities, and enhance accountability among businesses. While the added compliance may seem cumbersome, especially for small businesses, it is a significant step forward in fostering transparency and trust in the business ecosystem. Companies are advised to consult with legal and financial experts to ensure that they remain compliant and navigate the new regulatory landscape efficiently.

This is a new law, and with any new legislation, you can expect a lot of confusion.  This is what we know so far based on FinCEN’s final rulings in September 2022.

1. Who Must File a Beneficial Ownership Information (BOI) Report?

Domestic Reporting Companies: Every corporation, LLC, limited partnership, or other similar entity created by filing documents with a Secretary of State or similar office falls under the purview of the CTA. If your entity does not qualify for an exemption, then you are obligated to file a BOI report.

Foreign Reporting Companies: Certain entities originating from foreign countries and registered to operate in the U.S. must also comply.

2. What is a Beneficial Owner and Company Applicant?

Beneficial Owner: This refers to an individual having significant influence over the company, either through substantial control or by owning/controlling at least 25% of its ownership interests. This ensures that those wielding significant power or financial stakes in a company are held accountable. This will include shareholders, members, or partners in a company.  In addition, it may include non-owner corporate officers such as a Chief Executive Officer (CEO), Chief Operating Officer (COO), or Chief Financial Officer (CFO).

Company Applicant: This pertains to the individual responsible for the very formation of the domestic reporting company. If multiple individuals are involved, it refers to the one with the primary directive or control over the filing.

3. Specific Information Requirements for the Company:

Full Legal Name: As registered in state or tribal documents.

Trade names: Also known as “doing business as” names if any are used.

Principal Place of Business: The full current street address where primary operations are conducted.

Jurisdiction of Formation: It is the state or tribal authority that you are registered under.

Taxpayer Identification Number: Crucial for tax purposes and tracking.

4. Specific Information Requirements for Beneficial Owners and Applicants:

Full Legal Name: The official name as it appears in legal documents

Date of Birth: This helps in unique identification and background checks.

Current Residential Street Address: For company applicants conducting the formation in the course of their business, they must provide the street address of the business.

Unique Identifying Number: Derived from a valid U.S. passport, state or local ID, driver’s license, or, in the absence of these, a foreign passport.

Document Image: An image of the document from which the unique identifying number was sourced is also mandatory.

As the landscape for small businesses evolves, having the right legal consultants by your side is paramount. The Corporate Transparency Act, with its layers and intricacies, underscores the importance of timely business lawyer consultation. Our office is committed to guiding you every step of the way. If the CTA feels overwhelming or you are uncertain about your status, do not hesitate to reach out. The Wright Firm, PLLC, is here to assist, enlighten, and ensure your business thrives in compliance.