What is the Corporate Clarity Act (CTA)?
Table of Contents
The Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, requires most U.S. companies to report beneficial ownership facts to the Financial Crimes Enforcement Network (FinCEN).
Prior to the CTA, the lack of readily available information about who ultimately owned and controlled companies facilitated illicit activities like money laundering, tax evasion, and fraud. The CTA aims to combat these issues by creating a centralized database of beneficial ownership information, making it easier for law enforcement and financial institutions to identify and investigate suspicious activity. The law applies to entities created or registered in the United States, and many foreign entities operating within the U.S.
For example, on december 18, 2023, FinCEN issued a final rule detailing the requirements for reporting companies, including the types of information to be reported and the procedures for filing reports. FinCEN’s final rule on beneficial ownership information reporting outlines these details.
Who Must Comply with the CTA?
Most U.S. entities,including corporations,limited liability companies (LLCs),and other similar structures,must comply with the CTA,with certain exemptions.
The CTA’s reporting requirements apply to “reporting companies.” A reporting company is defined as any entity created or registered to do business in the United States. However, there are 23 exemptions to this rule, including entities that are already subject to important regulation, such as banks, credit unions, insurance companies, and certain publicly traded companies. Small businesses meeting specific criteria are also exempt.
As of January 1, 2024, reporting companies were required to file their initial beneficial ownership reports with FinCEN. FinCEN’s BOI filing website provides detailed information on the filing process and exemptions. The initial filing deadline for companies existing *before* January 1, 2024, is January 1, 2025.
What Information Must Be Reported?
Reporting companies must disclose information about their “beneficial owners” and “company applicants.”
Beneficial owners are individuals who directly or indirectly own or control at least 25% of the reporting company. This includes individuals who exercise considerable control over the company,even if they don’t own a significant percentage of the equity. Company applicants are the individuals who directly file the document that creates the entity with the relevant state agency. The information required includes full legal names, dates of birth, addresses, and unique identifying numbers from a valid identification document (like a driver’s license or passport).
FinCEN provides a detailed list of required information in it’s Small Entity Compliance Guide. FinCEN’s Small Entity Compliance Guide (March 2024) provides a comprehensive overview of reporting requirements.
What are the Penalties for Non-Compliance?
Failure to comply with the CTA can result in significant civil and criminal penalties.
Civil penalties can reach up to $10,000 for each violation. Criminal penalties can include fines of up to $10,000 and imprisonment for up to two years. Additionally, intentionally providing false information can lead to even harsher penalties. FinCEN has the authority to impose these penalties on both the reporting company and the individuals responsible for the non-compliance.
On February 29, 2024, the U.S. Department of Justice announced its frist enforcement action related to the CTA, highlighting the seriousness with which the government is treating compliance. Department of Justice Press Release details the case involving a man charged with willfully failing to report beneficial ownership information.
Recent Legal Challenges and the Status of the CTA
The CTA has faced legal challenges, but remains largely in effect as of January 24, 2026.
in March 2024, the U.S. District Court for the Northern District of Alabama issued a ruling in National Association of Small Business United v. Yellen,finding the CTA unconstitutional. Though, the Biden Administration appealed this decision, and the stay was lifted on January 17, 2024, meaning that reporting requirements are once again in effect while the appeal proceeds. The case is currently before the Eleventh Circuit Court of appeals.
the Eleventh Circuit Court of Appeals heard oral arguments on January 16, 2026, and a ruling is expected in the coming months.Eleventh Circuit Oral Argument Schedule provides details on the hearing. Despite the ongoing litigation, FinCEN continues to encourage reporting companies to file their beneficial ownership reports.
