EVERYTHING YOU NEED TO KNOW ABOUT THE CORPORATE TRANSPARENCY ACT BY ADAM M. RIPP & TRISTIN S. TAYLOR, BAIRD HOLM LLP THE CORPORATE TRANSPARENCY ACT (CTA)1 IS landmark legislation that will significantly impact how privately held corporations, LLCs, and other entities report ownership information to the federal government. For decades, anonymous shell companies with hidden ownership have enabled financial crimes like money laundering, tax evasion, and terror financing. In response, Congress enacted the CTA in 2021 as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021. This sweeping legislation creates new federal reporting requirements for certain business entities to (i) report certain beneficial ownership information (BOI) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and (ii) disclose information about who created the entity or registered it to do business in the U.S. It is essential for all business advisors to understand these new reporting requirements so they can help their clients comply. This article provides an overview of key provisions, implementation timelines, and implications that business advisors and their clients need to understand. Who (Must Report)? The CTA mandates reporting for entities labeled as “reporting companies,” unless they are exempt. “Reporting companies” include corporations, LLCs, LLPs, and other entities created by filing official documents with a secretary of state or similar office.2 The CTA places the reporting obligation on reporting companies, as opposed to on the beneficial owners directly.3 The CTA exempts 23 types of entities from its reporting requirements, which broadly encompass entities that are already highly regulated (e.g., publicly traded companies, banks and other financial institutions, registered investment companies and investment advisers, insurance companies, and specified tax-exempt entities).4 Large, U.S.-based operating companies (i.e., greater than 20 full-time employees and greater than $5 million in gross receipts or sales and physical presence in the U.S.) and inactive entities are also exempt; somewhat counterintuitively, there is no exemption for small companies. What (Must Be Disclosed)? Each reporting company that was formed prior to Jan. 1, 2024 (the Effective Date), must provide information regarding itself and its “beneficial owners.”5 Reporting companies formed on or after the Effective Date must also provide information regarding their “company applicants.” A “beneficial owner” is any individual who either (i) owns or controls at least 25% of the equity interests (including convertible instruments and options) in the reporting company or (ii) exercises substantial control over the reporting company (including senior officers).6 A “company applicant” includes both (i) the individual who directly files the document that forms or registers the reporting company and (ii) if more than one individual was involved in such filing, the individual primarily responsible for directing or controlling the filing.7 A reporting company must disclose the following information regarding itself and its business operations:8 Full legal name; Any trade names or “doing business as” (DBA) name it operates under; Current address;9 Jurisdiction of formation or registration; and Tax Identification Number (TIN) or Employer Identification Number (EIN). 12 Nebraska CPA
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