Corporations. LLCs. Limited partnerships. Whatever the form, millions of Americans own interests in entities like these, and millions more exercise control over them as managers and directors. There are good reasons why so many people own and control entities like these: they can limit an owner’s personal liability, manage important assets without dispersing control among a large number of people, and facilitate the orderly transition of ownership from one generation to another.
Liability-limiting entities are a critical part of business and estate planning. But the new federal Corporate Transparency Act (“CTA”) creates new headaches for the people who own or control most corporations, LLCs, and other entities created by filing paperwork with the state. Everyone who owns or controls one of these entities needs to be aware of the CTA and comply with its requirements. Failure to comply with the CTA can result in civil fines of up to $500 per day[1] and felony criminal penalties of up to $10,000 per violation and up to two years in prison.
Congress passed the National Defense Authorization Act of 2020 with an overall goal of funding the military for another year. This nearly 3,000-page bill also contained the CTA. The CTA was motivated by a desire to prevent money laundering through business entities. It can be difficult or impossible for financial institutions or law enforcement to determine who owns or exercises control over many entities, and Congress believed that the privacy associated with these entities posed too great a risk to national security.
Accordingly, the CTA requires most existing or newly formed corporations, LLCs, and other business entities formed by filing paperwork with a state (“reporting companies”) to file beneficial ownership information reports (“BOIRs”) with the Financial Crimes Enforcement Network (“FinCEN”).  BOIRs must provide personal identifying information for every human being who (1) owns or controls, directly or indirectly, 25% or more of a reporting company, and/or (2) has substantial control over a reporting company (“beneficial owners”).  Companies formed on or after January 1, 2024, must also identify the people who filed or directed the filing of the reporting company’s formation documents (“company applicants”).
Reporting Companies
Although “reporting company” is a broad definition, it does not cover every arrangement. General partnerships and sole proprietorships are not reporting companies because no paperwork needs to be filed with the state to form them, but they also do not limit their owners’ liability. Trusts and estates are not reporting companies, but trustees, personal representatives, and certain beneficiaries can become beneficial owners when a trust holds an ownership interest in a reporting company.
There are 23 very narrow exceptions to what counts as a reporting company. Certain highly regulated businesses like banks, broker-dealers, CPAs who are licensed to audit public companies, and some insurance-related entities do not need to report. 501(c) nonprofit organizations are exempt from reporting as long as they keep their nonprofit status. And large operating businesses—ones with more than $5 million in gross receipts for the previous tax year, 21 or more full-time employees, and operations in the United States—are exempt. Other exemptions exist, but again, they are very narrow and do not include most entities. There are no exceptions for being “just a dentist” or for “just owning a rental property.”
Beneficial Owners
Beneficial owners clearly include people who own 100% of a reporting company’s interest in their own name. But it can include many, many more people. When a married couple owns shares or membership interests in a reporting company as community property, both spouses are deemed to own that interest and must both be reported. The trustees, trust protectors, people who have lifetime powers to appoint trust assets, and certain beneficiaries of any trust that holds ownership interests in a reporting company will be deemed to own or control that interest and must be reported. And when there are multiple layers of entity ownership, the CTA requires looking through every layer of ownership to find the human beings who own the shares.
More than one person can be deemed to have ownership or control over the same ownership interests in a reporting company. Every reporting company will have at least one beneficial owner: the reporting requirement cannot be avoided simply by splitting ownership equally among five people.
There are very narrow and limited exceptions to the definition of “beneficial owner.” Professionals offering services at arm’s length, like financial advisors, attorneys, and CPAs acting in their professional capacities, are not beneficial owners. Minor children are not beneficial owners if their parents’ information is reported. Company employees who do not have control over major decisions are excluded, as are people whose only interest in an entity is a right of inheritance. Creditors are also generally excluded.
Determining who a beneficial owner is can be very difficult and may require professional assistance in some cases.
Company Applicants
Company applicants are the people who file company formation paperwork. This includes the individual who personally submits the paperwork (e.g., a paralegal) and the person who directs the submission (e.g., the attorney who tells the paralegal to file the formation paperwork). A reporting company will never have more than two company applicants. If a company was formed in 2023 or earlier, then applicant information is not reported. Initial BOIRs for companies formed in and after 2024 must include applicants’ identifying information.
What Information Must Be Reported?
A reporting company must share its full legal name, all trade names and “doing business as” names, its street address, its state of formation, and its tax I.D. number. A reporting company must also report every beneficial owner’s full legal name, date of birth, current residential street address (not a P.O. box), and a unique I.D. number from a government document (e.g., current passport or driver’s license). A photocopy of the identifying document is required. If the reported information for a reporting company or a beneficial owner changes (e.g., a beneficial owner joins or leaves the company, a beneficial owner changes her name or moves across the street), then an updated report must be filed.
Although company applicants must report most of the information that beneficial owners report, company applicants may provide the address of the business for which they work in lieu of their home address. There is no requirement to update company applicant information on subsequent BOIRs.
When Must BOIRS Be Filed?
Companies formed before January 1, 2024, must file initial BOIRs before January 1, 2025. Companies formed during 2024 must file initial BOIRs within ninety (90) days of formation. Companies formed in 2025 or later must file initial BOIRs within thirty (30) days of formation.
When a company’s or beneficial owner’s identifying information changes, an updated BOIR must be filed within thirty (30) days.  Because this time frame is so short, anyone who owns or controls a reporting company needs to anticipate the need to file an updated BOIR and plan accordingly whenever ownership information changes. There is, however, no annual reporting requirement; updated BOIRs only need to be filed if the company’s or a beneficial owner’s identifying information changes.
If you fail to file a BOIR when required, there is no way whatsoever to come into compliance, and you will be entirely at the mercy of law enforcement to determine whether you will be fined and imprisoned. There is a 90-day safe harbor for correcting false information that was inadvertently reported, but once the safe harbor passes there is similarly no way out. FinCEN has given no indication that it will go easy on anyone who fails to comply with these strict new requirements.
What if I need help?
Navigating the CTA’s reporting requirements can be challenging. CTA compliance is unlike anything most businesses have ever been subjected to. Complying with the new rules can be simple or complex depending on many factors, including the nature of the business, whether the business has multiple owners, and whether business interests are held in trust.  Contact your business or estate planning attorney to discuss what steps you need to do to comply with the CTA.
The opinions expressed are those of Chris Lauer who is not affiliated with Alaska Wealth Advisors. Material presented has been derived from sources considered to be reliable, but accuracy and completeness cannot be guaranteed.
[1] This number is tied to inflation: in 2024, the maximum penalty is really $591 per day.
