Understanding the Corporate Transparency Act (CTA) is essential for every business. The CTA went into effect January 1, 2024 and requires most small businesses to report and file business ownership information (BOI). This guide breaks down the CTA’s key provisions and helps you navigate the requirements confidently and effectively before the January 1, 2025 deadline.
What companies have to report?
The Corporate Transparency Act (CTA) applies to various business entities, including:
Corporations (C-Corps and S-Corps)
Limited Liability Companies (LLCs)
Certain trusts
Who is a Beneficial Owner?
Under the CTA, a beneficial owner is any individual who directly or indirectly:
Owns or controls 25% or more of a reporting company's equity interests.
Exercises substantial control over the company, even without significant ownership.
This includes individuals who:
Appoint or remove senior management or board members
Significantly influence important company decisions
Direct or control the disposition of significant assets
Exert controlling influence, even if undocumented
What Information Needs to be Reported?
Reporting companies must disclose the following information about their beneficial owners:
Full legal name
Date of birth
Address
Driver's license or passport number (US citizens/permanent residents)
Foreign taxpayer identification number (non-US citizens)
When and How Should Companies File Their Reports?
New companies: File within 30 days of formation
Existing companies: File their initial report by January 1, 2025
Updates: Report any changes to beneficial ownership information within 30 days
Filing method: Reports are submitted electronically through the FinCEN Beneficial
Large Operating Company Exception
Companies meeting all of the following criteria are exempt from reporting:
Employees: Over 20 full-time employees in the US (as defined by IRS regulations)
Revenue: Filed federal income tax returns for the previous year showing over $5 million in gross receipts or sales (excluding outside-US sources)
Operating presence: Have a physical office within the United States
Important Note: This is an "AND" test, meaning all three criteria must be met for exemption.
There are certain reporting exceptions that can be found on the FinCEN Exemptions Page
Reporting Requirements for Related Companies
The CTA clarifies reporting requirements for related companies (e.g., under common
ownership):
Single Report: If multiple related companies share the same beneficial ownership
information, they can file one joint report (e.g., parent-subsidiary structures with
identical ownership).
Separate Reports: However, separate reports are required if each related company
has distinct beneficial ownership information, even if they share some common
owners.
Penalties for Non-Compliance
Failing to comply with the CTA reporting requirements can lead to significant penalties,
including:
Up to $500 for each day a report is overdue, capped at $10,000 per violation
Imprisonment for up to two years.
Determining Your CTA Filing Obligation: Important Notice
Please note that the Corporate Transparency Act (CTA) is not governed by the Internal Revenue Code. Identifying "beneficial owners" under the CTA can be complex and may require legal interpretation. This process involves considerations that fall outside the scope of services provided by Baker Holtz.
As we cannot provide legal advice on whether specific business relationships qualify as beneficial ownership, we will not be filing these reports on your behalf. We strongly recommend legal counsel for the BOI filing process.
Recommended Next Steps
To ensure compliance, we recommend consulting with a qualified business attorney who can advise you on your CTA obligations. Taking this step will help you meet federal requirements with confidence.
For more information and resources to file, please see the FinCEN page. Forms to file electronically will be available at no cost.
Baker Holtz is happy to answer any questions and assist within the engagement agreed upon for services.
Baker Holtz CPAs and Advisors
161 Ottawa Ave NW Suite 200
Grand Rapids, MI 49503
Phone: 616-458-1835
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