Do I Have To File?
Learn if you have to file by taking this easy 6 step quiz.
The US Corporate Transparency Act Affects You.
Days until you’ll be required to report
Managing Partner of Anderson Advisors
Everything You Need To Know About The Corporate Transparency Act
Everything You Need To Know About The Corporate Transparency Act
The CTA represents the most dramatic increase in required disclosure in the U.S. by business entities in over 20 years.
If you own, control, or even loan money to an LLC, for profit corporation, Limited Partnership, LLP, LLLP, or Statutory trust, you are now required to file a report with the US Financial Crimes Enforcement Network (FinCen) on your company and its owners.
The CTA was passed in 2021. As of January 1, 2024, all business entities will be required to comply with the CTA.
The failure to file the necessary reporting can result in severe civil and criminal penalties including fines up to $10,000 and two years in prison.
Who is a Beneficial Owner
- An individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise:
- Owns or controls no less than 25 percent of the ownership interests of the entity either individually or aggregated though different business entities, or
- Exercises “substantial control” (an undefined term) over an entity.
Who is a NOT Beneficial Owner
- A minor – however you must provide information on the minor’s parent or guardian;
- An agent/nominee/intermediary/custodian of another individual;
- An employee of the entity with no control or economic benefits beyond the terms of employment unless that employee is a senior officer (see “What is considered Substantial Control”;
- An individual whose only interest is through inheritance; or
- A creditor of the reporting company unless the creditor otherwise meets the definition of “beneficial owner” such as having a loan agreement that gives the creditor the power to direct the affairs of the business.
What Qualifies as Ownership Interest?
Any interest that is held via any of the following in a reporting company:
Indirect ownership through joint ownership
Ownership through a trust
Other contract arrangement, understanding, or relationship
What is Considered Substantial Control
The term substantial control is not clearly defined but can include the following:
- Service as a senior officer of the reporting company, regardless of title;
- Authority over the appointment or removal of any senior officer or a majority or dominant minority of the board of directors (or similar body);
- Direction, determination, or decision of, or substantial influence over, important matters affecting the reporting company, including but not limited to:
What is NOT Considered Substantial Control
Managers or others who exercise day to day decision making.
What must be reported
Each entity must report on itself, beneficial owners and any applicant that registered the entity with the Secretary of State where the entity is organized.
Do I have to report this information every year?
No, but you must report any change in the required information within 30 days of the change.
Are there any shortcuts to make reporting easier?
Yes. Anderson can help you apply for a unique FinCEN identifier that can be used in lieu of providing all of the information requested by FinCEN on a beneficial owner.
Is this information publicly available?
1. Law enforcement in furtherance of national security, intelligence, or law enforcement activity.
2. US Dept of Treasury can access for purposes of tax administration
3. State, local and tribal law enforcement may access with a subpoena
4. May be shared with foreign countries under certain circumstances and with federal functional regulators or other appropriate regulators upon request and under certain conditions
5. May be disclosed to financial institution with consent of Reporting Company to facilitate financial institution’s compliance with verifying the identify of a customer
If my living trust owns my LLC who is considered a beneficial owner?
If a living trust or other type of non business trust owns an LLC or different type of business entity then:
The Trustee or others with authority to control the trusts assets must be disclosed,
If trust has just one beneficiary the single beneficiary must be disclosed,
If the trust has more than one beneficiary then those beneficiaries with the power to withdraw or demand distributions of substantially all of the trust assets must be disclosed, and
If person(s) establishing the trust (grantor/settlor) of the trust can revoke the trust or withdraw assets, the grantor(s) must be disclosed
If I have set up a land trust do I have to report?
No, land trusts are not filed with a state agency therefore they are not considered a reporting company.
Does my LLC operating agreement need to be updated to comply with FinCEN?
No but Anderson recommends that if your LLC has other non-spousal members, the LLC operating agreement be updated to contain provisions obligating members to comply with any reporting requirements under the CTA.
What type of language should I include in my LLC operating agreement to comply with the CTA
You operating agreement should include mutual indemnifications for failure to comply by a member. Who controls disclosure in the event the members disagree. What are the remedies for the LLC and other members if a member refuses to comply. Anderson has prepared language for all of its LLCs addressing these and other concerns raised by the CTA.
Can I use bearer shares or membership interests to avoid reporting?
No. The CTA includes a provision prohibiting the issuance of bearer shares or certificates.
If I close down my company must I notify FinCEN
Regulations have not been released concerning reporting on closed companies.
What happens if I fail report?
If a reporting company fails to report it and the beneficial owners are subject to civil penalties of up to $500 per day for each day of the violation and Criminal penalty of $10,000 and up to 2 years of imprisonment.
What happens if I submit a knowingly false report?
A person who knowing submits a false report is subject to a civil penalty of $500 per day or each day that the violation continues or has not been remedied; criminal penalty of up to $250,000 or five years’ imprisonment, or both
When are you required to report?
Entities created before 1-1-2024 – By 12-31-2024
Entities created on or after 1-1-2024 – Within 14 calendar days of the date of formation
Change in beneficial ownership – Within 30 calendar days of change
Examples Of When You Must Report
My company only has a bank/savings/brokerage account
My company that does not hold any assets
My company is owned 76% by my minor children and 24% by me
My company was dissolved in year X. Is it required to report the following year?
Under current regulations the answer is yes because the company held assets or conducted business activity within the past year and does not fall under exemption #23. The company will not have to report in subsequent years.
I own less than 25% of a company but serve as its manager
I loaned money to a company and the terms of the note allow me to convert the debt to equity
My IRA is a member is a greater than 25% member in an LLC
I have 5 companies that each hold a 20% interest in an LLC
My wife and I are the managers and members of an LLC
I am the manager, and my wife is the 100% member of our LLC
My company is the beneficiary of a land trust that holds real estate
The land trust does not report but the company must report because the land trust is considered an asset.
My company is owned by my joint living trust with my spouse
Yes, your company must report, and you must report on you and your spouse as both the trustees and beneficiaries of your living trusts (beneficial owners).
My Solo 401k is a member is a greater than 25% member in an LLC
My non-profit owns 100% of an LLC
My non-profit owns less than 100% of an LLC
The LLC does not meet the subsidiary exemption of #22 and therefore must report. The beneficial owner, however needs only list your non-profit and not any of its directors.
What is NOT Considered a Reporting Company?
Links to CTA Regulations
Beneficial Owner Reporting Requirements