The final rule of the Corporate Transparency Act (CTA) is an important development in the business world that can impact anyone who owns a company. This applies to various types, including small businesses, limited liability companies, and corporations. Since the CTA has specific rules about who needs to submit information and when, it’s helpful to learn about its requirements to ensure you’re prepared when it’s time to report for your own business. Here’s some information about the CTA’s final rule and what it means for business owners.

Key Takeaways

• The CTA’s final rule requires business owners to disclose beneficial owners who own at least 25% of the company and the people who maintain substantial control over it.
• The CTA applies to domestic companies and foreign companies, both currently existing and future businesses.
• Since the CTA’s final rule goes into effect on January 1, 2024, any company that exists before that date needs to submit an initial report by January 1, 2025.

What Is the CTA’s Final Rule?

The CTA’s final rule requires businesses to submit specific information to the government that identifies the people who own and operate the company. This act aims to prevent financial crimes such as fraud and money laundering, as a business will be less able to commit crimes when its owners and leaders are clearly outlined and recorded with the government. This act stipulates that anyone who owns an LLC, corporation, or any other type of entity that’s registered with the state has to provide details about the owners and people who have control over the company.

What Does the CTA Mean for Business Owners?

The most significant implication that the CTA’s final rule has for business owners is that it requires them to disclose beneficial owners who own at least 25% of the company. Aside from beneficial owners, the final rule also applies to any person who maintains substantial control over an organization. This includes people who may not be listed as owners but who contribute to decisions about how an organization runs.

This final rule extends to people who have ownership of one business through other businesses as well, even though they may not be listed as the official owner of one of their companies. For example, if someone owns an LLC and uses that company to purchase and run a secondary one, both of these entities need to report their owners under the CTA. Since the people who own the first LLC are actually running and making decisions for the secondary one, they’re seen as the “true owners” of both and should submit information as the owners of both LLCs.

What Information Do You Need To Submit?

The CTA asks for specific information regarding the owner of the company. This includes their name, birth date, and home address. It’s key to note that the government wants a person’s home address during this reporting, not a business address. You’ll also need to submit a photocopy of your driver’s license, passport, or state-issued identification card.

Aside from information about the owner, you’ll also need to give details about the company itself. This includes the full legal name of the company and any trade name that it operates under. You’ll need to provide the company’s current address and jurisdiction of formation. Finally, you’ll need the federal taxpayer ID number to verify that it’s registered as a tax-paying entity.

Who’s Required To Report?

The final rule of the CTA makes distinctions about which types of companies need to submit these reports about their ownership. First, the CTA mentions domestic companies, which are entities that were established by filing with the secretary of state or a tribal office. Aside from corporations and LLCs, this includes non-corporate entities such as limited partnerships, business trusts, and limited liability partnerships.

The CTA also requires foreign companies to report their owners. These include LLCs, corporations, and other businesses that were established under another country’s laws but still do business in the United States. This means that even if a company is headquartered and primarily operated in a different country, it’ll still need to submit reports if it offers products or services in the U.S. 

Who’s Exempt From Reporting?

While the CTA’s final rule applies to a large group of companies, there are a few types of businesses that are exempt from reporting. These include large operating companies that have 20 or more full-time employees within the U.S., a physical presence in the country, and over $5 million in revenue that comes from the U.S. Other companies that are exempt include banks, credit unions, accounting firms, public utilities, and inactive companies. If you have an entity with the Registered Commodity Exchange Act, a similar investment company, or a venture capital fund advisor, you’ll also be exempt.

When Do You Need To Report?

Since the CTA’s final rule goes into effect on January 1, 2024, any company that exists before that date needs to submit an initial report by January 1, 2025. If you register a company after January 1, 2024, you’ll need to file your first report within 30 days of your registration. For companies that initially were exempt from reporting and experience changes that no longer make them exempt, they’ll need to file an updated report within 30 days of the major change.

How Do You Submit Your Reports?

To submit your report in accordance with the CTA’s final rule, you’ll use official forms created by the Financial Crimes Enforcement Network (FinCEN). These are currently in progress but are expected to become available before January 1, 2024. This will give you time to review the forms and gather all the information you need to prepare your submission. 

When you’re ready to submit your report to FinCEN, you can fill out the forms and include information about the company, the beneficial owners, and anyone else who maintains control over its operations. If you create a company after January 1, 2024, you’ll also need to include details about your company applicants.

When Do You Need To Update Your Reports?

If you submit a report to FinCEN and later experience changes in your company, you’ll need to file a new, updated report. The deadline for this is within 30 days after the date of the actual change. Some changes that can call for updated reports include changes in who the beneficial owner is, such as through sales of ownership interests or transfers of ownership. Another example is when details that appear on a previous report change, such as someone changing their name or home address. 

Even when the transfer of ownership happens for reasons outside of a business owner’s control, such as death or a minor reaching the age of majority, you’ll still need to file an updated report. A reporting company that later becomes exempt from reporting will also need to submit an updated report to signal its exemption status.

Whether you’re a beneficial owner or someone who makes decisions at a company, you’ll likely need to submit a CTA report. If you’re unsure about whether you need to report or when you have to do so, consider working with a financial advisor who can guide you through the process. This can allow you to get expert-level advice about your specific business to ensure you adhere to all the regulations the CTA’s final rule stipulates.