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The Corporate Transparency Act: What It Means For You

June 10, 2024

BY CHRISTOPER H. RYAN, ESQ.
Taft, Southfield, MI

The Corporate Transparency Act (CTA) took effect in January, 2024, and it is likely to impact the vast majority of businesses of all shapes and sizes and in nearly every sector of the economy. Given how new the law is, combined with mounting legal challenges questioning its legitimacy, questions are being raised about nearly every aspect of the Act. One thing is certain: businesses, including healthcare organizations, need to pay attention. 

WHAT IS THE CORPORATE TRANSPARENCY ACT?

The CTA was enacted in 2021, but the main provisions of the act only recently took effect. The CTA is a federal law that requires most business entities to report Beneficial Ownership Information to the United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). As explained in more detail below, the law essentially requires companies to disclose the names and contact information of the individuals who own or control the business entity. 

WHAT IS THE PURPOSE OF THE CTA? 

Proponents of the CTA state that under the current—mostly anonymous— structure of businesses, criminals have been able to hide behind and launder money through shell companies. They claim doing so has facilitated illegal activities such as human trafficking, corruption and tax fraud. The CTA is designed to correct this by requiring entities to report the identities of the individuals “behind” the company. 

WHAT TYPES OF ENTITIES HAVE TO REPORT? 

The CTA has two types of reporting companies: domestic and foreign. The definitions of each are very broad. Domestic reporting companies include corporations, limited liability companies and all other entities created by filing a document with a secretary of state or other similar office. Foreign reporting companies are entities formed in a foreign country but registered to do business in the United States. 

ARE THERE EXEMPTIONS? 

Yes. There are 23 categories of entities that are exempt. Although the list (and the particular requirements to fit into each category) is far too long for this article, major categories of exempt entities include insurance companies, accounting firms, public utilities, certain inactive entities, banks and tax-exempt entities. Each of the 23 categories contains specific requirements that must be present in order to fit within the exemption. Although there is no express exemption for medical practices or hospitals, that does not necessarily mean that a medical practice or hospital would not be exempt if it fits within a different category (such as a tax-exempt entity). 

WHEN IS THE REPORT DUE?

A reporting company that was created prior to January 1, 2024 has one year (until January 1, 2025) to file its initial report. A reporting company that is created during 2024 has 90 days to file its report. A reporting company created after January 1, 2025 has to file within 30 days.

WHAT NEEDS TO BE REPORTED?

For the most part, the report captures information about the beneficial owners of the reporting company. The term “beneficial owner” is not just the individuals who ultimately own the company. A beneficial owner is anyone who directly or indirectly (1) exercises substantial control over the company, or (2) owns or controls 25% or more of the company’s ownership interests. 

An individual exercises “substantial control” where he or she is a senior officer (e.g., president, CFO, COO, etc.), has the authority to appoint or remove a senior officer, directs or has substantial influence over important decisions made by the reporting company, or is an individual with any other form of substantial control. An individual can have direct or indirect substantial control through various means including board representation, rights associated with a financing arrangement, and control over intermediary entities that exercise substantial control over the reporting company. 

For each beneficial owner, the reporting company generally needs to report his or her full name, residential address and date of birth. The reporting company also has to provide FinCEN with an image of a document that identifies each beneficial owner (e.g., driver’s license, passport, government issued identification, etc.). Reporting companies are also required to disclose information about the reporting company, including where it was formed and its current address.

WHERE CAN THE REPORT BE MADE? 

Many businesses are engaging legal counsel to navigate CTA compliance. At other times, businesses are asking accountants to perform the function. As indicated above, there are numerous exceptions to the reporting requirements and questions are frequently being asked about who qualifies as a beneficial owner. For those that want to handle reporting themselves, the report is available (as of the time of this writing) on the FinCEN website: boiefiling.fincen.gov. The FinCEN website also contains guidance documents with more specific information about reporting requirements and exemptions from reporting requirements. 

WHAT HAPPENS IF A BUSINESS DOES NOT REPORT?

A person who willfully violates the reporting requirement can be subject to civil penalties of up to $500 per day. There are also criminal penalties of up to two years in prison and a fine of up to $10,000. 

IS THE CTA BEING CHALLENGED? 

Yes. Challenges have been brought by various interest groups. Most notably, National Small Business United brought an action in the United States District Court for the Northern District of Alabama. The Court ruled that the CTA exceeded Congress’s power and it enjoined the Department of Treasury and FinCEN from enforcing it against the parties to that lawsuit. FinCEN appears undeterred, as it has stated that, with the exception of the particular entities and individuals subject to the court order, all other entities must continue to comply with the reporting requirements. It is also appealing the Court’s order. 

THE TAKEAWAY 

A lot about the CTA is in flux and may change as time goes on. One thing is for sure: businesses of all shapes and sizes, including healthcare entities, need to pay attention and have a plan in place to ensure CTA compliance.


Christopher J. Ryan, Esq., is an attorney and Partner at Taft. He is an experienced litigator who has spent most of his career representing individuals and businesses involved in the healthcare industry. Chris can be contacted at CRyan@taftlaw.com.

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