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An Overview of The Corporate Transparency Act

By Scott Bent Partner, Frost Brown Todd, LLP | December 2024

Earlier this year, a federal law went into effect that will impact businesses and their owners across the country—the Corporate Transparency Act (CTA).

The CTA, which took effect January 1, 2024, is designed to fight illicit activities like money laundering and terrorist financing by requiring companies to disclose information about their ownership to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury. Failure to comply with the requirements of the CTA can trigger civil penalties, fines, and imprisonment, so it must be reckoned with. This article provides a general overview of the CTA, not a comprehensive description of its requirements. You should consult with legal counsel to determine whether the CTA applies to you and what, if anything, you must do to comply.

It bears mention at the outset that there have been constitutional challenges to the CTA in the federal courts, and earlier this year, a District Court in Alabama held that the CTA is unconstitutional because it exceeds Congress’s legislative authority. The case has been appealed to the Eleventh Circuit Court, and may end up before the U.S. Supreme Court, but in the meantime, the CTA remains in effect. Most legal analysts expect that the CTA will survive the legal challenges, though some provisions may be dialed back.

The disclosure requirements of the CTA apply to “reporting companies,” which generally consists of any legal entity formed by the filing of organizational documents with a state or tribal authority, unless an exemption applies (more on exemptions below). For reporting companies formed before January 1, 2024, the required CTA disclosures must be made no later than January 1, 2025. For reporting companies formed on or after January 1, 2024, the required disclosures must be made within 90 days after formation.

Most of the common types of business entities—such as corporations, limited liability companies, and limited partnerships—are generally classified as reporting companies, so the CTA analysis usually begins with determining whether an exemption from reporting company status applies. The CTA regulations identify 23 categories of companies that are exempt from the CTA’s disclosure requirements. Some common types of exempt companies include:

  1. Regulated businesses such as banks, insurance companies, publicly-traded companies, and pooled investment vehicles;
  2. Tax-exempt entities, including 501(c) organizations and tax-exempt political organizations;
  3. Large operating companies, which must have more than 20 full-time employees in the U.S., with income tax returns reflecting more than $5 million in domestic gross receipts or sales, and with an operating presence at a physical office in the U.S.;
  4. Subsidiaries that are 100% owned or controlled by one or more exempt entities; and
  5. Inactive entities.

In general, most small for-profit businesses are unlikely to qualify for a CTA exemption. One of the unfortunate ironies of the CTA is that the smaller your business is, the more likely the CTA disclosure requirements apply.

Reporting companies that do not qualify for an exemption must disclose information about the entity, its “beneficial owners,” and the “company applicants” involved in forming the entity. A reporting company’s “beneficial owners” consist of: (1) those individuals who, directly or indirectly, exercise substantial control over the entity, and (2) those individuals and entities that own or control at least 25% of the entity’s ownership interests. Common examples of category (1) individuals include directors, managers, general partners, and most senior officers. An entity’s “ownership interests” include equity and profit interests, convertible instruments, and rights to subscribe to or purchase shares (such as options).

A “company applicant” is the individual who directly files the document that creates a reporting company, as well as the individual primarily responsible for directing or controlling the filing if more than one individual is involved. For instance, a lawyer who drafts the company’s formation documents and the individual who files them with the Secretary of State are both company applicants.

The initial report filed with FinCEN must include the following information:

  1. The reporting company’s legal name, any trade name, current address, the jurisdiction in which the entity was formed, and the entity’s IRS Tax Identification Number;
  2. For each beneficial owner of the reporting company, the individual’s full legal name, date of birth, current residential address, a unique identifying number from an official document such as a driver’s license or a passport, the jurisdiction that issued the official document, and an image of the official document; and
  3. For each company applicant of the reporting company, similar information to that listed in paragraph (2) above.

In a small display of bureaucratic mercy, reporting companies that were formed prior to January 1, 2024 are not required to provide any information about company applicants.

If any information reported to FinCEN changes, an updated FinCEN report must be filed within 30 days after the date on which the change occurred. For example, if a beneficial owner’s residential address changes, the change must be promptly reported to FinCEN. Likewise, if any information disclosed on a FinCEN report is inaccurate, the reporting company must file a corrected report within 30 days after the date on which the reporting company becomes aware or has reason to know of the inaccuracy. A reporting company is not, however, required to file an updated or corrected report if information about a company applicant changes. The ongoing obligation to keep FinCEN reports accurate and up-to-date means that reporting companies should develop protocols to track changes to the applicable beneficial owner information (i.e., name changes, changes of residential address, and changes to the applicable official document).

If you are feeling overwhelmed by the CTA’s reporting obligations, fret not, for there is a shortcut to much of the information gathering: the FinCEN identifier. Reporting companies and individuals may obtain a FinCEN identifier by submitting an application to FinCEN that provides the beneficial ownership information for the entity or individual. The reporting company or individual may then simply provide the FinCEN identifier in lieu of reporting the beneficial ownership information. The FinCEN identifier should be particularly helpful for individuals who are beneficial owners or company applicants of numerous reporting companies.

CTA disclosure reports and updates must be filed electronically through the Beneficial Ownership Information Reporting system, which can be accessed on the FinCEN website. The reports can be filed in PDF format, via a fillable online reporting form, or through a third-party service provider.

There are many advisors and service providers available to assist reporting companies with CTA matters. Capable legal counsel can advise you regarding CTA compliance, including determining whether you are exempt from the reporting obligations. Some law firms will also make the required CTA filings on behalf of reporting companies, although many firms have opted not to make the filings themselves due to liability concerns. Your accountant may be able to assist with CTA filings, though some accounting firms have also elected not to make the filings themselves. There are service providers with departments dedicated to managing and completing CTA filings. In some cases, these are the same service providers that companies use for filing organizational documents and designation as statutory registered agent.

The CTA information reported to FinCEN is rather sensitive, but fortunately, the CTA allows FinCEN to disclose the information on a limited basis. FinCEN is allowed to disclose the information only to the following six categories of requesters:

  1. Federal agencies engaged in national security, intelligence, or law enforcement activities, and only for use in connection with such activities;
  2. State and local agencies authorized by a court to obtain the information as part of a criminal or civil investigation;
  3. Federal agencies acting on behalf of foreign law enforcement officials or judges;
  4. Financial institutions subject to customer due diligence obligations, but only with the consent of the reporting company;
  5. Certain federal regulatory agencies that supervise financial institutions, but only to assess financial institution compliance with customer due diligence obligations; and
  6. The Department of the Treasury (which includes the IRS) for tax administration purposes and for personnel whose official duties require such access.

The CTA requires FinCEN to implement protocols to safeguard disclosed information, to build a secure IT system to store the information, and to establish procedures to ensure that only authorized users can access the information for permitted purposes. Likewise, financial institutions that receive information from FinCEN are required to establish safeguards to protect the information to the same standard applicable to their customers’ nonpublic personal information.

The CTA’s disclosure obligations can seem like an unnecessary and onerous burden, but the CTA must not be ignored. The penalties for willful failure to make the required disclosures include: (i) civil penalties of up to $500 per day that the violation continues, (ii) fines of up to $10,000, and (iii) imprisonment for up to two years. The CTA regulations do provide a safe harbor from penalties for voluntarily and promptly correcting an inaccurate report within 90 days.

Some States have enacted their own versions of the Corporate Transparency Act. For example, the State of New York recently enacted the New York LLC Transparency Act, which goes into effect December 21, 2024. These State-level counterparts to the CTA are generally patterned after the CTA and, in some cases, incorporate provisions of the CTA by reference. The State laws generally apply only to entities that are formed or authorized to do business in the State. Unlike the CTA, in order to claim an exemption from the filing obligations of the New York LLC Transparency Act, the LLC must file a signed statement with the New York Secretary of State identifying the exemption(s) relied upon.

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Hotel Newswire is a newswire service that distributes press releases on behalf of our users. If you decide to submit a press release for distribution through our system we will transmit your entire press release including any personal information therein contained to our media contacts and online distribution points including search engines. This is the only redistribution of your information that we engage in. Your submission of press releases through our system indicates consent with this policy. The information we collect during your registration process is used to notify users about updates to our service and inform users of any special events hosted by Hotel Newswire. This information is not shared with other organizations for commercial or non-commercial purposes.

Cookies: Our system requires the use of cookies to enable the user to log back into our website to access information from the newswire, without having to log in each time using the required username and password.

If you do not want to receive email from us in the future, please let us know by following instructions included in our communication with you. Users who supply us with telephone numbers online may receive telephone contact from us regarding their account, or informing them of new products and services available on the HotelExecutive website. If you do not wish to receive such telephone calls, please edit your account and remove your phone number from your account profile. This can be done from your user account menu.

Ad Servers: We do not partner with or have any relationship with any ad server companies. From time to time, we may use customer information for new uses not previously disclosed in our privacy notice. If our information practices change at any time, we will post the policy changes to our website to notify you of these changes and provide you with the ability to opt out of these new uses. If you are concerned about how your information is used, you should check back at our website periodically.

Upon request we provide site visitors with access to all information (including proprietary information) that we maintain about them. Users can access this information by logging in to their account.

Security: We always use industry-standard encryption technologies while transferring and receiving user data exchanged with our site. We have appropriate security measures in place in our physical facilities to protect against the loss, misuse, or alteration of information that we have collected from you on our site. We do not store credit card information in our systems.

If you feel that this site is not following its stated information policy, you may contact us.

Cynthia Schuler Strategies for Hiring and Retaining Top Talent in the Changing Hospitality Landscape
  • By Cynthia Schuler, Principal, IntegriStar HR Consulting

    • It is crucial to attract and retain top talent in the hospitality industry. In an article in Forbes Advisor entitled, "Key HR Statistics and Trends in 2023" by Kristy Snyder, Cassie Bottorff, and Brette Sember, J.D. it is stated that the leisure and hospitality industry has a separation rate of 79% "when it comes to annual average employment." That means that companies in the hospitality industry must audit their current recruitment process, review their salary structure and benefit offerings, and commit to identifying and offering learning opportunities for current and future employees.   Recruitment The first...

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Heather Berti Key Attributes Hiring Managers Should Recognize During The Interview Process
  • By Heather Berti, Senior Vice President of People Services, Arlo Hotels

    • Hiring in hospitality has always required a blend of instinct and insight. With evolving guest expectations and growing competition for top talent, it’s more important than ever for hiring managers to look beyond resumes to uncover attributes that truly signal potential during the interview process. From the front desk to the executive office, the most successful hospitality professionals share the same key attributes. Being able to recognize these attributes during the interview process can help hiring managers make smarter, more strategic decisions that benefit both team culture and business outcomes. Here’s what your team should look...

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Nathan Green Awakening The Senses: The Future of Hotel Guest Engagement
  • By Nathan Green, CEO & Co-Founder, New Level Radio

    • Imagine stepping into a hotel lobby and feeling instantly transported. Not by the grandeur of the architecture alone, but by a subtle, woody aroma with a hint of tranquility. Not just hearing conversation, but feeling the soothing pulse of music easing the day’s tensions. Not simply seeing a beautifully arranged floral display, but actually smelling the silky petals as you walk by. This is the power of sensory marketing, a curated orchestration of sight, sound, scent, taste, and touch that transforms a hotel stay into an unforgettable experience. In a world full of visual stimuli, hotels are discovering the profound...

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James Downey A New and Trusted Method to Analyzing a Lodging Operation Using An Old and Proven Approach
  • By James Downey, Professor Emeritus, Lynn University

    • Analyzing a lodging operations ideal position and potential for success has been written about and postulated by some of the best marketing minds in the business over the last 75 years. What has not changed is the way a lodging operation has to position itself vis-a-vis its product, market and competition and the way in which it can stay in business during a buyers or sellers market. This article will delineate the three most revealing approaches a general manager can examine and how he or she remains a vital force in the market for the short and long haul....

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Michael Goldrich The AI Advantage: Hoteliers ROI of an AI First Mindset
  • By Michael Goldrich, Founder & Chief Advisor, Vivander Advisors

    • No longer a "nice to have," AI is becoming essential to operational success for hotel teams. According to the Nielsen Norman Group, generative AI can increase user productivity by an astounding 66%. The Massachusetts Institute of Technology (MIT) found that skilled professionals who integrated AI into their workflows experienced a 40% productivity boost. These aren’t incremental improvements, they represent paradigm shifts. McKinsey & Company reports that AI can automate between 60% and 70% of data collection and processing tasks. For hotels, where real-time data powers everything from revenue management to marketing automation, this level of automation means faster, smarter decisions....

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Olha Kotova Drone Storytelling: a Powerful Marketing Tool for Modern Hospitality
  • By Olha Kotova, CEO, Kotova, Inc

    • In today’s experience-driven travel economy, guests no longer choose hotels solely based on star ratings or amenities. Instead, they are drawn to stories—visually captivating narratives that help them imagine themselves in a space before they ever step foot inside. With the meteoric rise of short-form video on platforms like Instagram and TikTok, the hospitality industry is undergoing a major shift toward immersive, emotional marketing. At the forefront of this transformation is drone storytelling. Drone videography provides an aerial perspective that evokes awe, authenticity, and atmosphere. When combined with intentional storytelling, these visuals do more than impress—they influence perception, trigger...

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Frank Vertolli How AI Will Transform Your Hotel Guest Experience in 2024 and Beyond
  • By Frank Vertolli, Co-Founder, Net Conversion

    • In today’s evolving marketing landscape, the integration of artificial intelligence (AI) will impact customer engagement and is poised to change the travel industry significantly. Armed with unprecedented opportunities, marketers can leverage AI technologies throughout the customer journey to deliver personalized experiences and optimize interactions at every touchpoint. As we explore how AI will reshape consumer experiences in 2024, its impact on the travel industry becomes evident. Whether through generative AI or other established forms, AI streamlines travel discovery by simplifying itinerary planning. For travel suppliers, encompassing airlines, hotels, cruises, car rentals, and rideshare providers, the promise of AI lies in...

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