The Corporate Transparency Act (CTA) was enacted by Congress on January 1, 2021as a part of the National Defense Authorization Act. The CTA generally requires shell entities to report their ultimate ownership to the federal government’s Financial Crimes Enforcement Network (FinCEN). More specifically, each “reporting company” must provide each “beneficial owner’s” full legal name, date of birth, current residential or business address, and either a unique identifying number (from a passport or state-issued ID or a FinCEN identifier number). See https://www.congress.gov/bill/116th-congress/house-bill/2513/text
The law was originally to become effective by January 1, 2022. However, on December 7, 2021, FinCEN issued a proposed updated rule on disclosure requirements, which will delay implementation for at least another two months.
The primary purpose of the CTA is to provide law enforcement with beneficial ownership information for the purpose of detecting, preventing and punishing terrorism, money laundering and other misconduct by business entities. Businesses that form shell companies for legitimate purposes should pay close attention to the CTA’s requirements and consult with counsel to ensure compliance.
Under the CTA, a “beneficial owner” is an individual who, directly or indirectly (1) exercises substantial control over an entity; or (2) owns or controls at least 25 percent of the ownership interests in an entity. Additionally, a reporting company must update the information provided to FinCEN upon a change in beneficial ownership within one year of the change. 31 U.S.C. § 5336 (b)(2)(A)
There are five exclusions from the term “beneficial owner”:
1. A minor child, if the child’s parent’s or guardian’s information is otherwise is reported properly;
2. An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;
3. An individual acting as an employee whose control is due employment status;
4. An individual whose only interest in the entity is through a right of inheritance; and
5. A creditor of the entity, unless the creditor meets the requirements of a beneficial owner.
A reporting company is “a corporation, limited liability company, or other similar entity that is created by the filing of a document with the secretary of state or similar office under the law of a State or Indian Tribe; or formed under the law of a foreign country and registered to do business in the United States by filing a document with a secretary of state or similar office under the laws of a State or Indian Tribe….” Exceptions include, for example, insurance companies, public accounting firms, banks, credit union and 501(c)(3) nonprofit organizations. See 31 U.S.C. § 5336(a)(11)(B)(i)-(xxiii), NDAA § 6403(a)(11)(A).
Because the new law targets shell companies, a reporting company excludes an entity that employs more than 20 employees full-time, filed tax returns showing more than $5 million in gross receipts or sales and has physical office space in the United States. See § 31 U.S.C. § 5336(a)(11)(B)(xxi)
An individual who willfully provides false or fraudulent beneficial ownership information or willfully fails to complete the beneficial ownership information is subject to a $500 civil penalty each day the violation continues and a fine of up to $10,000, imprisonment for up to two years, or both. The CTA provides a liability exception for those who correct the inaccurate information within 90 days, unless the inaccurate information was provided for purpose of delay and the person had actual knowledge of the inaccuracy. Unauthorized use or disclosure of beneficial information that is a part of a pattern of illegal may also subject the violator to imprisonment.
This overview of the CTA is not meant to be provide a complete description of the Act. Each business should review the requirements that apply to its particular circumstances and should consult with both legal and financial professionals for advice.

For more information, Stewart M. Banner – Crystal & Giannoni-Crystal, LLC