This article answers common questions that companies and individuals have about the Corporate Transparency Act (“CTA”). Please note: these answers are general and may not apply to you. Please consult an attorney for advice regarding the CTA and how it may apply to you or your company.
The law and best practices relating to the CTA change frequently, and portions of this page may be outdated at the time that you read it.
Q: What is the Corporate Transparency Act?
A: The CTA is a federal law that took effect in January 2024. It requires nearly all privately owned companies in the United States to report certain information to the Financial Crimes Enforcement Network (“FinCEN”), a division of the U.S. Treasury Department. This information includes names and other information about these companies’ “Beneficial Owners,” or people with significant ownership stakes or control of the companies, as well as the companies themselves and the people involved in forming the company. Companies that must file these reports (called “Reporting Companies”) must do so shortly after they are formed as well as in the future when their Beneficial Ownership information changes.
Companies organized outside the U.S. must also sometimes file reports with FinCEN if they are registered to do business in the U.S.
Q: Whose job is it to file the CTA reports?
A: The CTA requires a Reporting Company itself, as opposed to its CEO or any other officer or owner, to file CTA reports. For a single-owner Reporting Company, this means the owner should handle CTA compliance.
In more complex Reporting Companies with multiple officers, managers, directors or owners, the principals should assign one or more individuals the important task of ensuring the company’s own CTA compliance.
In all cases, the Reporting Company’s owners can retain a law firm to handle its CTA compliance matters.
Q: How important is it to comply with the CTA? Does this have any teeth?
A: Compliance with the CTA is critical. An individual who causes a Reporting Company to fail to make CTA reports when due – or who files incorrect reports – can be liable for civil fines or even penalized criminally.
CTA missteps can also haunt companies in the future. If those missteps are disclosed to potential investors or acquirers in the future, deals can be delayed at best or fall apart entirely at worst.
Q: Who needs to pay attention to the CTA?
A: Every company formed or registered in the United States, because every company needs either to file reports with FinCEN or to confirm that it is exempt from doing so.
Many individuals should also be aware of the CTA. If an individual holds significant equity in a Reporting Company or a position of substantial control within it, the Reporting Company may report them to FinCEN. The Reporting Company itself – not the individual in question – decides whether the individual is a Beneficial Owner. FinCEN offers more guidance on which individuals are deemed Beneficial Owners.
Q: How do Reporting Companies file the reports?
A: Reporting Companies have several options for filing reports.
First, many law firms provide the service of filing the report or advising Reporting Companies on filing procedures. Perkins Thompson provides this service for existing and new clients on request and where confirmed in writing with the client. Perkins Thompson clients or others can feel free to contact Julie Ray or Adam Nyhan with questions on these services.
Second, Reporting Companies can file the reports themselves at https://www.fincen.gov/boi. We encourage filers to follow the on-screen directions to “Create a FinCEN ID.” A FinCEN ID makes filings easier by allowing individuals to upload their key contact information one time to expedite future filings.
FinCEN charges no fee when filing reports, and for many Reporting Companies, the information requested is fairly easy to gather and confirm.
Q: How do I know if my company must file CTA reports?
A: If your company was formed by filing a document with a Secretary of State or similar office in any U.S. state or tribal agency, start by assuming it must file CTA reports. Then confirm whether any exemption applies to your company. As of the “Last Updated” date above, 23 types of companies are exempt from these requirements. FinCEN summarizes those exemptions here.
The exemptions generally apply to companies that are already subject to some higher-than-typical regulatory scrutiny because they operate in regulated industries or because they are large and established operating companies. This in turn means that the companies most likely not to be exempt are the small businesses that comprise most of the U.S. economy.
Q: My company barely makes a profit. Do I really have to file a CTA report?
A: A company’s profitability or lack of profitability does not by itself determine whether a company must make CTA reports. However, a company may qualify for the “inactive entity” CTA exemption if:
(a) The company in the previous 12 months has not sent or received funds exceeding $1,000;
(b) The company was formed on or before January 1, 2020 and is not engaged in active business;
(c) The company owns no assets of any kind, including ownership interests in most types of companies, anywhere in the world;
(d) The company in the previous 12 months has had no changes in its ownership; and
(e) No foreign person owns any portion of the company, indirectly (e.g., via an intermediary company) or directly.
Q: Is my sole proprietorship required to make CTA reports?
A: People use the term “sole proprietorship” in a variety of ways, sometimes even to mean single-owner LLCs, so let’s clarify what we’re talking about. If the single-owner business is organized as an LLC, corporation, or any other type of company that is formed by filing documentation with a state or tribal agency, assume the business is not exempt from the CTA unless you can identify an exemption (see above).
If your business is a true sole proprietorship, meaning that you do business as yourself and have never formed a company by filing documentation with a state or tribal agency, then it is not a Reporting Company.
Q: Are Corporate Transparency Act reports different from the annual or biennial reports my company already files with the state government?
A: Yes. If your company in the past has filed annual reports with the State of Maine, biennial reports with the State of New York or similar reports with other state governments, the CTA has no effect on that reporting obligation. The CTA is a federal not state law, and took effect in January 2024.
Note that most state governments require companies to file their state reports by a fixed deadline each year. By contrast, the CTA requires federal reports shortly after a company’s formation and then again when certain information changes. This means that a company should not simply plan to file CTA reports whenever it files state reports. Doing so risks failing to make federal CTA reports when they are due.
Q: What does FinCEN do with the information reported to it under the CTA?
A: Information that Reporting Companies report to FinCEN under the CTA is not available to the general public. Various federal, state, local and tribal law enforcement and regulatory agencies have the ability to access this information, sometimes fairly freely, sometimes only after demonstrating a need. Banks and other financial institutions also have the ability to access it for use in their own legal compliance work.
Q: Are trusts considered Reporting Companies?
A: Usually not, but certain trusts that are formed by filing documentation with state or tribal agencies can be Reporting Companies.
Q: Where can I find more answers about the CTA?
A: We recommend these resources:
FinCEN, the U.S. federal agency that administers the CTA and CTA reporting, has published these guides:
Perkins Thompson publishes a growing number of CTA resources:
- The Corporate Transparency Act Resource Center, an online hub for CTA information
- Corporate Transparency Act Imposes New Federal Reporting Requirements on Most U.S. Companies
- How Investors Should Prepare for the Corporate Transparency Act
- The Corporate Transparency Act: An Overview for Financial Institutions
- Frequently Asked Questions about the Corporate Transparency Act
Perkins Thompson, P.A.’s Business & Corporate Law Practice Group advises clients on the application of the Corporate Transparency Act.
Adam Nyhan is a Shareholder in the Business & Corporate Law, Intellectual Property & Technology and Banking & Financial Services practices at Perkins Thompson, P.A. He represents American and foreign companies in U.S. business matters including corporate formation and structure, venture finance and technology transactions.