How to Prepare for the Corporate Transparency Act

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA), ratified into law on January 1, 2021, is part of the 2021 National Defense Authorization Act (NDAA). Congress enacted the CTA as part of the Anti-Money Laundering Act (AMLA)of 2020.

What is the CTA’s purpose?

The CTA aims to reduce financial crimes by creating a federal database of reporting companies and the individuals involved in their formation, control, and ownership (FRGA Law). The purpose of this database is to aid the government in preventing criminals from laundering their ill-gotten gains through the US financial system by revoking their anonymity.

What does the CTA require companies to do?

The Corporate Transparency Act requires certain companies (called ‘reporting companies’) to report beneficial owner and company applicant information to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Required information includes:

  1. The company’s full name
  2. Any trade names or DBAs
  3. The business street address
  4. Jurisdiction of formation
  5. IRS taxpayer ID

In addition they must report each beneficial owner and company applicant’s:

  1. Name
  2. Birthdate
  3. Address
  4. Unique identifying number from an acceptable official document (such as a passport or state-issued driver’s license)

Ready or Not

The Corporate Transparency Act’s final regulations are anticipated to come into effect before January, 2023. FinCEN requires reporting companies that existed prior to the finalized regulations to file their CTA beneficial ownership reports within one year of the effective date. Depending on the size of your company, that year may not feel quite as long as it sounds. Are you ready?

Steps to Take

Gather Details

Start by gathering the requisite details about your company, including the information listed above and your Federal Employer Identification Number (FEIN—also known as an Employer Identification Number or a business tax ID). The IRS issues FEINs to businesses for tax purposes. Also, make sure you have your filing number from your Department of State website.

Find out how many beneficial owners you have. Don’t leave anybody out! Remember, FinCEN defines “beneficial owners” as any individuals who directly or indirectly:

  1. Exercise substantial control over the reporting company – Senior officers, those with authority over senior offices, those who have practical influence over substantial company matters, etc., OR
  2. Own or control at least 25% of the reporting company’s ownership interests

A reporting company must identify any and all individuals who fit into either (or both) of these two categories. When in doubt, err on the side of caution.

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