At Compass Insurance, we believe in keeping our clients informed about important regulatory changes that may impact their operations. One such significant development is the Corporate Transparency Act (CTA) of 2024, a federal law aimed at enhancing transparency in corporate ownership to combat illicit activities like money laundering and terrorism financing. Effective from January 1, 2024, the CTA mandates certain entities, including corporations, partnerships, limited liability companies (LLCs), and trusts, to disclose their beneficial ownership information to the U.S. Financial Crimes Enforcement Network (FinCEN).
Who Does the CTA Apply to?
The CTA applies to domestic corporations, LLCs, and other entities formed by filing organizational documents with state officials, as well as certain foreign entities operating within the United States. These entities, referred to as Reporting Entities, are required to submit reports containing detailed information about their beneficial owners.
Understanding Beneficial Ownership
A beneficial owner, as defined by the CTA, is an individual who directly or indirectly owns or controls 25% or more of the ownership interests or exercises substantial control over the entity. For trusts, individuals such as trustees, settlors of revocable trusts, certain beneficiaries, and powerholders may need to be reported to FinCEN if they meet the criteria outlined in the act.
Reporting Obligations and Timeframes
Reporting Entities formed after January 1, 2024, have 90 days from their formation date to file the required report, while those in existence before that date have until the end of 2024 to comply. Beginning January 1, 2025, new Reporting Entities must file within 30 days of formation. Any changes to the reported information must be promptly updated with FinCEN within 30 days.
Information to be Reported
The CTA specifies the information to be provided for each beneficial owner including,
- their full legal name
- date of birth, current address
- and a unique identifying number such as a driver’s license or U.S. passport.
Minors who qualify as beneficial owners may have their parent or guardian’s information reported until they reach the age of majority.
Applicant Information
In addition to beneficial ownership information, the CTA requires reporting of certain information for individuals—referred to as applicants—who direct or control the filing of organizational documents for the entity after January 1, 2024.
Exemptions and Compliance Strategies
While the CTA includes exemptions for specific types of entities and activities, businesses must assess their eligibility for these exemptions.
It’s important to be aware that certain states have suggested and are in the process of passing legislation that mirrors the reporting framework of the Corporate Transparency Act (CTA). These laws could introduce supplementary reporting obligations specific to those states. If your company is authorized or operates in other states, we can explore how these developments might impact your business and provide guidance accordingly.
