What Is The Corporate Transparency Act

The Corporate Transparency Act (CTA) is a landmark piece of federal legislation that requires millions of LLCs to report their true owners to a U.S. government database.

Enacted in 2021 and enforced on January 1, 2024, the law aims to combat financial crimes by preventing the use of anonymous shell companies. While its goals are straightforward, the Act’s requirements have sparked both confusion and controversy among business owners, legal experts, and state officials.

In this What Is The Corporate Transparency Act guide, we’ll break down everything you need to know, including whether your business needs to comply with the CTA and — if so — what exactly you’ll need to report.

Legal Basis

Despite the fact that more than two million new businesses are formed in the United States each year, most states require virtually no information to be provided about who actually owns these companies.

According to The Treasury Department, this lack of transparency has created a perfect environment for financial crime, with these malicious entities using layers and layers of anonymous shell companies to conceal their illicit activities — much like Russian nesting dolls.

In particular, the anonymity created by the lack of this key information allows them to launder illicit funds through these shell companies, which is then used to enable a number of crimes that are “harming the national security interests of the United States”, including:

• Money laundering
• Financing for terrorism
• Human and drug trafficking
• Serious financial crimes (e.g., securities fraud, financial fraud, and tax evasion)
• Counterfeiting
• Piracy
• Acts of foreign corruption

Working closely with Congress, the Treasury Department sought to shut down this practice in 2021 with the Corporate Transparency Act (HR 6385), which established the US’s first national database of business ownership information, maintained by the Financial Crimes Enforcement Network (FinCEN).

Through the creation of this secure, non-public database, the Treasury Department aimed to give law enforcement and intelligence agencies the tools needed to unmask these shell companies — with the ultimate goal being to make the “[U.S.] financial system inhospitable to corrupt actors”.

Key Requirements

In order to achieve these ambitious goals, the CTA requires many businesses operating in the US to report certain pieces of “beneficial ownership information” when they’re initially formed and whenever any key changes in ownership occur.

In the sections below, we’ve provided a detailed breakdown of everything you need to know about these requirements, including whether they apply to you.

Who Must Report

In accordance with CTA § 5336 (a)(11)(A), a business that’s required to submit a BOI report — known as a “reporting company” — is defined as a corporation, LLC, or other similar entity that is either:

In simple terms, this means that almost all business entities based in the US are included within the scope of this bill, including:

• Corporations
• Limited Liability Companies (LLCs)
• Limited Partnerships (LPs)
• Limited Liability Partnerships (LLPs)
• Any other entities that needed official state paperwork to be formed
• Any foreign entities authorized to conduct business in the US

However, it’s important to note that sole proprietorships or general partnerships are specifically excluded from the CTA’s reporting requirements — meaning you won’t need to worry about filing a BOI report if you use either of these structures for your business.

Note: For more in-depth guidance on the steps to file this report, we recommend checking out our BOI Report for LLCs article.

What Information Must Be Reported

According to the requirements laid out under CTA § 5336 (b)(2)(A), all reporting companies will be required to submit the following information as part of their BOI report:

• Legal name of business
• DBA/Trade name (if applicable)
• Business street address
• The state in which it was formed
• EIN or DUNS number

Alongside all of the above, each of a business’s “beneficial owners” will need to provide the following information:

• Full legal name
• Date of birth
• Residential street address
• The number of an acceptable, government-issued ID (e.g., passport, driver’s license, state ID)

It’s important to have a good understanding of these requirements as submitting an incomplete or inaccurate BOI report can result in significant penalties — including civil penalties of $500 per day and even potential imprisonment.

What Is a Beneficial Owner

Now that we’ve covered who needs to file a BOI report and what information must be included, let’s clarify exactly who counts as a “beneficial owner” — as this will be crucial to ensuring your report is complete and accurate.

Under CTA § 5336 (a)(3)(A), a beneficial owner is described as any entity or individual that either:

• Has significant control over a company
• Owns or controls at least 25% of your business

In simple terms, think of beneficial owners as the people who truly run or own your company, whether directly or indirectly — which could be through a variety of different means, including contracts, agreements, or other business arrangements.

However, CTA § 5336 (a)(3)(B) states that all of the following parties are specifically excluded from being considered beneficial owners, including:

• Minors (if their parent or guardian’s information is reported instead)
• People who are just acting on behalf of someone else (i.e., nominees or agents)
• Regular employees whose only control comes from their job duties
• People who only have a future ownership interest through inheritance
• Creditors, unless they meet the basic ownership or control criteria above

Legal Challenges 

As a result of an injunction filed by a federal court in Texas in December 2024, the implementation of the CTA has been temporarily suspended, alongside all the BOI reporting requirements it entailed.

We’ve broken down everything you need to know about these recent developments in the sections below.

Constitutional Authority Issues

The primary legal argument against the CTA is that, in creating these reporting requirements that business owners are obligated to comply with, Congress has exceeded its constitutional authority.

In particular, the plaintiffs in Texas Top Cop Shop, Inc. v. McHenry put forward three primary arguments against the validity of the CTA:

1. The federal government lacks the power to regulate business formation, as this has traditionally been a state matter
2. The reporting requirements may violate Fourth Amendment protections against unreasonable searches
3. The act could infringe on privacy rights protected by the Fifth Amendment

While it weighs up these arguments, the Fifth Circuit Court of Appeals decided to reinstate the injunction and suspend all filing deadlines for BOI reports on December 26, 2024 — including the reports that were due by January 13, 2025 for businesses formed before 2024.

While this legal review is being fast-tracked by the Fifth Circuit, companies will still need to wait until at least the end of March, 2025 before getting clarity on their reporting obligations.

Current State of the CTA

So what does this mean for you as a business owner?

As of February 2025, the previous federal injunction on BOI filings has been lifted, and a new filing deadline has been set for most reporting companies (March 21). 

You should also note that in order to help business owners plan ahead, the Fifth Circuit has issued the following timeline of the expedited court proceedings:

• February 7, 2025: The Department of Justice (i.e., the appellant) must file their defense of the CTA and why they believe the injunction on it should be lifted.
• February 21, 2025: The appellees (plaintiff) challenging the CTA must file their brief explaining why they believe this statute is unconstitutional.
• February 28, 2025: The government agencies will be given one last written response to defend their position on the CTA.
• March 25, 2025: Both sides will appear in court to answer the judges’ questions directly and engage in an oral argument.

As such, the next key milestone in this case is March 25 — when the Fifth Circuit will hear both sides’ arguments in a verbal proceeding and begin the process of making a final decision on whether or not to stay the injunction.

What’s Next?

With the number of factors in play, it’s difficult to predict with certainty what might happen next with the CTA. 

For example, while the Fifth Circuit will reach a final decision on the Texas Top Cop Shop, Inc. v. McHenry at the end of March, it will by no means be final as the losing party still reserves the right to file an appeal with the Supreme Court.

On top of this, there are a number of speculations swirling around regarding what the effects of Trump’s presidency will be on this matter — in particular, whether the Department of Justice under his administration could drop the appeal against the BOI injunction entirely.

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