The Corporate Transparency Act

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The Barnes Walker Educational Series • May 2024

The Corporate Transparency Act (the “CTA”) is a federal law passed by Congress and signed by the President to combat drug money laundering, terrorist financing, tax fraud, and other illegal activity by targeting the anonymity of criminals or terrorists operating behind and through entities.

As you may know, money laundering is the process of transferring money to businesses or real estate companies owned or controlled by criminals or terrorists. The money being transferred has been generated by criminal means (for example, illegal drug sales or illegal weapons sales) or gathered to finance terrorism or other unlawful activities. The entity appears to be conducting a legitimate business (usually cash-based so that legal and illegal funds can be intermingled) or seems to be a real estate investment company buying up property. Once the illicit money is transferred to the entity, it appears that the entity has generated all the cash by legitimate means from the sale of goods, services, or real estate.

A. The CTA’s Primary Requirement

With certain exceptions, the CTA requires all entities that have been created by filing or registering with a state’s secretary of state or similar government agency to file a report with the U.S. Financial Crimes Enforcement Network (“FinCEN”). The entities that are required to file are called “reporting companies,” and the report filed is called a Beneficial Ownership Information Report (BOIR).

B. What Entities Are Not Reporting Companies?

Virtually every corporation, limited liability company, limited partnership, and other business entity created in the U.S. must report, except those already registered with, regulated by, or licensed by a federal agency. Examples of exempt entities include banks, insurance companies, CPA firms, tax-exempt organizations, most companies in the securities industry, “large operating companies,” and inactive entities. (Note: Estates and personal trusts that are not “business trusts” are not reporting companies because no filings are made with a secretary of state for them.)

“Large operating companies” generally are those which have reported $5 million or more in revenues to the IRS, have a physical office in the U.S., and employ more than 20 full-time employees in the U.S.

Owners of “inactive entities” need to be careful, because this exemption is more limited than it sounds. To qualify as “inactive,” the entity must have been in existence on or before January 1, 2020 and must not: (1) engage in active business, (2) have a foreign owner, (3) have changed ownership in the past 12 months, (4) own any assets, or (5) have sent or received funds greater than $1,000 in the prior 12 months.

For detailed information on exemptions, see Section 1.2 of FinCEN’s Small Entity Compliance Guide.

C. What Must Reporting Companies Report?

In their BOIR, reporting companies must identify their “beneficial owners,” and, starting in 2024, their “company applicants.”

1. Beneficial Owners

“Beneficial owners” are individuals who either (a) own, directly or indirectly, 25% or more of the reporting company, or (b) exercise “substantial control” over the reporting company.

25% or More Owners: The CTA requires that individuals—not entities—be reported as beneficial owners. Ownership can be direct or indirect and may take the form of stock, LLC membership interests, partnership interests, voting rights, or convertible options.

Substantial Controllers: An individual exercises substantial control if they are a senior officer (President, Vice President, CEO, CFO, CIO, etc.), can appoint or remove such officers, make important decisions, or otherwise control the company. (See Section 2.1 of the FinCEN Guide for more detail.)

2. Who Is Not Reported as a Beneficial Owner?

• Minor children (parents or guardians are reported instead)
• Individuals acting on behalf of a beneficial owner (agents or attorneys-in-fact)
• Employees who are not senior officers or decision-makers
• Individuals with only future interests (e.g., future beneficiaries)
• Creditors of the reporting company

3. Company Applicants

Newly created reporting companies (2024 and beyond) must report who created the company by filing with a secretary of state — including both (a) the direct filer and (b) any person who directed or controlled that filing.

D. Filing a BOIR

1. Deadlines

• Companies formed before 2024: file by January 1, 2025.
• Companies formed in 2024: file within 90 days of creation or first public notice of creation.
• Companies formed in or after 2025: file within 30 days of creation.

2. How to File

File online at FinCEN.gov/BOI using the BOIR E-Filing System. Appendix B of the original guide provides a visual walkthrough for older entities formed before 2024.

3. What You’ll Need

• Company’s state of filing, address, tradename, and taxpayer ID
• For each beneficial owner: address, date of birth, and copy of driver’s license or passport

You may apply for an optional FinCEN ID if filing multiple reports.

4. Updates

A BOIR does not need to be filed annually — only when information changes or needs correction. Updates must be filed within 30 days of a change.

5. Will Barnes Walker File for You?

Barnes Walker only files BOIRs for entities it helps create in or after 2024. Because the BOIR requires sensitive personal information, the firm limits data handling for client protection. Clients are encouraged to file directly, as the process is straightforward.

E. Noncompliance

1. Penalties

Intentional failure to file, false reporting, or failure to update a BOIR is a federal felony punishable by up to two years imprisonment and a fine of up to $10,000. Civil penalties are $500 per day of violation. Senior officers and involved parties may be held liable.

2. Court Case

As of March 2024, in National Small Business United v. Yellen (U.S. District Court, Alabama), the CTA was found unconstitutional. The DOJ is appealing, and FinCEN continues implementation, exempting only the plaintiffs in that case.

3. Recommendation

Barnes Walker recommends compliance, as appeals are expected to uphold the CTA. The U.S. government already maintains most of the requested information across tax and identification databases. Therefore, complying minimizes risk of penalty while ensuring transparency.

For more information, consult FinCEN’s Small Entity Compliance Guide.

Important Deadlines:
Companies created before 2024 must file by December 31, 2024.
Companies created in 2024 must file within 90 days of formation.

With warm regards,
Garret T. Barnes • Adron H. Walker • Jeffrey S. Goethe
Andre R. Perron • John J. Shea • M. Brandon Robinson

Important Note

The information in this Barnes Walker Educational Series article is summary in nature and provided for educational purposes. It should not be considered legal advice or a substitute for consulting an attorney about your specific situation. The article is not an all-inclusive discussion of the Corporate Transparency Act, and additional factors may apply. Always seek legal advice regarding your unique circumstances. This publication is a public service and not a solicitation for legal employment.