In an era where financial transparency is paramount, the Corporate Transparency Act (CTA) stands out as a significant legislative move. Enacted in 2021 as part of the National Defense Act for Fiscal Year 2021, the CTA introduces new rules that compel specific entities to disclose their Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). The aim? To help U.S. law enforcement combat money laundering, terrorism financing, and other unlawful activities. But, which companies are bound by these rules, and who gets a pass? Let’s find out.
*The below companies are all fictitious examples. Each circumstance is unique. As such, you should always check with a qualified professional*
Companies Subject to CTA Reporting:
- ABC Corporation – Subject to CTA Reporting
ABC Corporation is a U.S.-based company that manufactures and sells consumer electronics. They fall under the purview of the CTA because they are organized as a corporation under state law. The CTA mandates reporting for corporations, LLCs, and similar entities formed by filing with a secretary of state. ABC Corporation, as such an entity, must comply with the BOI reporting requirement.
- XYZ Holdings LLC – Subject to CTA Reporting
XYZ Holdings LLC operates as a real estate investment firm in the United States. Since it’s structured as an LLC, a type of entity formed by filing with a state secretary of state, it falls within the scope of the CTA. The Act specifically applies to entities like LLCs, making XYZ Holdings LLC obligated to report its BOI as required by the CTA.
- GlobalTech Inc. – Subject to CTA Reporting
GlobalTech Inc. is a foreign technology company that established a subsidiary in the United States to operate locally. Under the CTA, foreign entities that register to conduct business in the U.S. through a filing with a state secretary of state are subject to reporting. Therefore, GlobalTech Inc. must comply with the BOI reporting requirement due to its U.S. presence.
- ABC Bank – Exempt from CTA Reporting
ABC Bank is a major U.S. financial institution, but it falls under the category of businesses that are exempt from CTA reporting. Many financial institutions, banks, and credit unions are already heavily regulated by the government. Since they are subject to extensive oversight and reporting to other agencies, they are not required to file BOI reports under the CTA.
- XYZ Securities – Exempt from CTA Reporting
Similar to ABC Bank, XYZ Securities, a securities brokerage firm based in the U.S., is exempt from the CTA’s reporting requirements. Securities brokers and dealers are subject to their regulatory framework, and they are already obliged to disclose relevant information to governing bodies. Therefore, they are not required to duplicate this process under the CTA.
Companies Exempt from CTA Reporting:
- Joe’s Plumbing Services – Exempt from CTA Reporting
Joe’s Plumbing Services, a small plumbing business structured as a sole proprietorship in the U.S., does not need to comply with the CTA reporting requirements. This exemption arises because they are not structured as a corporation, LLC, or a similar entity that files with a Secretary of State that the CTA stipulates. Their business structure does not fall within the Act’s scope.
- Green Earth Nonprofit – Exempt from CTA Reporting
Green Earth Nonprofit, an environmental organization in the United States, is exempt from the CTA’s reporting requirements. The CTA focuses on commercial entities rather than nonprofit organizations. Nonprofits like Green Earth do not need to report their BOI under this legislation.
- GlobalTech Global – Exempt from CTA Reporting
GlobalTech Global, the parent company of GlobalTech Inc., is not required to report under the CTA. Since they are based in a foreign country and have no business activities in the United States, the Act does not apply to them. The CTA primarily targets entities with a presence in the U.S. that conduct business through filings with state authorities.
Reasons Not to Submit to CTA Reporting:
- Exemptions: The CTA provides exemptions for certain types of businesses, including publicly traded companies, banks, credit unions, securities brokers/dealers, and tax-exempt entities. If your business qualifies for these exemptions, you do not need to report.
- Non-Commercial Entities: Nonprofit organizations and businesses not involved in financial transactions or investments are generally exempt from CTA reporting.
- Not a Designated Entity Type: If your business structure is not a corporation, LLC, or similar entity that filed a formation document with a Secretary of State, you are not obligated to submit BOI reports.
Understanding the CTA’s impact on businesses is vital, especially considering the potential penalties for non-compliance. Companies falling under the CTA’s purview need to be vigilant, while those that qualify for exemptions can breathe a sigh of relief. The CTA, with its focus on transparency and financial integrity, marks a significant step toward a more accountable business landscape. As you navigate the intricate world of corporate ownership, remember that when it comes to the CTA, not everyone is in the same boat. Contact us with any questions.