Executive Summary

The Corporate Transparency Act (the CTA) is a federal law that requires many small businesses to report information about the company, its Beneficial Owners, and Company Applicants to FinCEN (the Financial Crime Enforcement Network, part of the US Treasury Department). Failure to comply can lead to fines of up to $500 per day and up to 2 years in prison. Company officers can have personal liability for compliance failures. Some have compared the CTA requirements to obtaining an EIN or filing an annual report. The CTA is much broader, and its reach is much more expansive. Below is a summary of some important information about the CTA.

What is the CTA?

The Corporate Transparency Act is a federal law that requires many small businesses to report information about the company, Beneficial Owners and Company Applicants.

What reporting does the CTA require?

The CTA requires filing an initial report, and filing updated reports whenever the information in the initial report changes. For new entities, the report must include information about the company, its Beneficial Owners, and its Company Applicants (those who created the company). Entities created before 2024 do not need to provide Company Applicant information. “Beneficial Owner” is a very broad term and may include many non-owners such as senior officers, key employees, creditors, contractors, affiliates, non-equity investors, trustees, trust beneficiaries, grantors and settlors of trusts, and others. Beneficial ownership is determined based on ownership interests and substantial control.

Because of how the reporting requirements work, some companies will experience a complex web of interconnected reporting obligations with related companies and third parties. For many, a FinCEN ID will be helpful with making reporting more efficient.

Which companies are required to file BOI reports?

Reporting Companies must file Beneficial Ownership Information (BOI) reports under the CTA unless they are exempt. “Reporting Companies” include LLCs, corporations, and any other entity that was created by making a filing with a governmental entity. The most relevant exemptions for many small businesses will be the “large operating company” exemption and the exemption for subsidiaries of some companies that are exempt from filing BOI Reports. Below is a high level summary of these exemptions; Click here for more detail on these exemptions. There is no exemption for small businesses.

• Large Operating Companies. The large operating company exemption requires, among other things, that (1) the company had at least $5,000,000 in sales reported on the prior year’s tax return, which can be determined on a consolidated basis; and (2) at least 21 full time US employees, which cannot be determined on an aggregated basis with affiliates. Part time employees and independent contractors do not count towards the full time employee total.

Subsidiary of Exempt Entities. If a company is wholly owned and controlled by one or more entities that are exempt from filing BOI reports, it will also be exempt, as long as the parent company(ies) are exempt under one of 18 eligible exemptions (including the large operating company exemption). If the company is only partially owned or partially controlled by an exempt entity, it must still file CTA reports. There is no comparable “parent or holding company” exemption, so be sure to look at your entire enterprise chart from a compliance perspective.

What are the key deadlines under the CTA?