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.

Day(s)

:

Hour(s)

:

Minute(s)

:

Second(s)

Days until you’ll be required to report

Anderson Business Advisors
Anderson Business Advisors

Managing Partner of Anderson Advisors

Everything You Need To Know About The Corporate Transparency Act

  • What

The CTA represents the most dramatic increase in required disclosure in the U.S. by business entities in over 20 years.

  • Who

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 an annual report with the US Financial Crimes Enforcement Network (FinCen) on your company and its owners.

  • When

The CTA was enacted in 2021 and became effective in 2022. As of January 1, 2024, all business entities will be required to comply with the CTA.

  • Why report

The failure to file the necessary reporting can result in severe civil and criminal penalties.

Important Definitions

Reporting Company

Beneficial Owners

An Applicant

The business entity that is required to report.
Any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns and controls at least 25 percent of the ownership interests of such reporting company.
Any individual who files the document that creates” a domestic reporting company; or any individual who files the document that first registers” a foreign reporting company to do business in any state. This will include employees of companies that register business entities and the person who oversees the employee.

Important Definitions

Reporting Company

The business entity that is required to report.

Beneficial Owners

Any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns and controls at least 25 percent of the ownership interests of such reporting company.

An Applicant

Any individual who files the document that creates” a domestic reporting company; or any individual who files the document that first registers” a foreign reporting company to do business in any state. This will include employees of companies that register business entities and the person who oversees the employee.

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:

Anderson Business Advisors

Equity

View Example

Anderson Business Advisors

Profit

View Example

Anderson Business Advisors

Proprietorship

View Example

Anderson Business Advisors

Convertible interests

View Example

Anderson Business Advisors

Options

View Example

Anderson Business Advisors

Indirect ownership through joint ownership

View Example

Anderson Business Advisors

Ownership through a trust

View Example

Anderson Business Advisors

Other contract arrangement, understanding, or relationship

View Example

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.

  • On the Reporting Company
  • On the Beneficial Owners
  • On the Applicant

FAQs

Do I have to report this information every year?

Yes. You must make an annual report.

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?
This is not a public database and the information collected by FinCEN will only be available to:
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

Companies

My company only has a bank/savings/brokerage account
You must report. The LLC falls within the CTA’s definition of a reporting company because it holds assets.
My company that does not hold any assets
It depends. If your LLC has not conducted any business activity or held assets for over 1 year it is considered dormant and not required to report.
My company is owned 76% by my minor children and 24% by me
It depends. If your LLC has not conducted any business activity or held assets for over 1 year it is considered dormant and not required to report.
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
Yes, you will be required to report as a beneficiary owner because you have substantial control over the company as its manager.
I loaned money to a company and the terms of the note allow me to convert the debt to equity
Yes, you are required to report as a beneficial owner of the company-borrower because your note is convertible to equity.
My IRA is a member is a greater than 25% member in an LLC
Yes, the LLC is a reporting company and must report. Also, the IRA is the beneficial owner and as such must report on the owner of the IRA because the IRA owner has “Substantial Control” over the IRA. The IRA does not fall under the non-profit exemption.
I have 5 companies that each hold a 20% interest in an LLC
The LLC is required to report, and you will be required to report as the beneficial owner because your aggregate ownership interests between the companies equals 100%
My wife and I are the managers and members of an LLC
The LLC is required to report, and you and your wife will be required to report as beneficial owners because your interest is greater than 25%.
I am the manager, and my wife is the 100% member of our LLC
Your LLC is required to report and you as the manager will report as a beneficial owner (substantial control) as will your wife (greater than 25% ownership).

Trusts

My company is the beneficiary of a land trust that hold real estate
The land trust does not report by 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 trustee and beneficiaries of your living trusts (beneficial owners).
My Solo 401k is a member is a greater than 25% member in an LLC
Yes, the LLC is a reporting company and must report. Also, the solo 401k is the beneficial owner and as such must report on the trustee of the solo 401k and the 401k participant. The solo 401k does not fall under the non-profit exemption.

Non-Profits

My non-profit
Your non-profit falls under exemption #19 and is not required to report.
My non-profit owns 100% of an LLC
The LLC falls under the subsidiary exemption of #22 and is not required to report.
My non-profit owns less than 100% of an LLC
The LLC does not meet the subsidiary exemption of #22 and therefor must report. The beneficial owner however need only list your non-profit and not any of its directors.

What is NOT Considered a Reporting Company?

Contact us

Company

Anderson Legal, Business & Tax Advisors

Call us

+1 800 706 4741