Managing CTA Compliance Obligations

Managing CTA compliance is going to be a significant task for companies when the Corporate Transparency Act takes on January 1, 2024. This post summarizes some key CTA compliance procedures that CTA reporting companies should implement.


The Corporate Transparency Act requires each CTA reporting company to file a beneficial ownership report. The report must identify each "beneficial owner" of the company. Companies formed after January 1, 2024 will also need to identify their "company applicant."

For each of these, the report must include each individual's:

1. Full legal name,

2. Date of birth,

3. Current residential address,

4. A unique identifying number from an acceptable identity document (such as an unexpired drivers license or passport) or a unique identity number generated by FinCEN; and

5. An image file of the document that provides the unique identifying number.

Key Compliance Requirements

To prepare the beneficial ownership report, the reporting company will need a written agreement with its shareholders. The agreement should obligate each shareholder to provide the needed information. Corporations, for example, should incorporate these concepts into a shareholders agreement. Limited liability companies will want to include these concepts in the company's operating agreement.

To ensure data security, the reporting company should adopt a system that securely stores the collected data, restricts access, and facilitates timely reporting.

The CTA requires reporting companies to file an amendment within 30 days after any change to an item of previously-reported data. This is a far-reaching requirement. As a result, the company-wide agreement should obligate shareholders to notify the company's compliance leader promptly after any changes in personal information.

Because the law requires an amendment within 30 days, shareholders must promptly report changes in their data. In addition, the company's compliance leader must be prepared to file an amendment promptly after learning of any change.

To manage its CTA compliance obligations, each reporting company should prepare a written procedure that the compliance officer will maintain. Part of that written procedure should include an IT system that collects and safely stores the collected information .

FinCEN Identifier

FinCEN's Final Rule on beneficial ownership reporting permits individuals to obtain a "FinCEN Identifier," or a special ID number for CTA purposes. While having a FinCEN Identifier will be helpful, it will not be a panacea.

The regulations require an individual to submit to FinCEN in their ID application all the same information that would have been included in a beneficial ownership report. Later, the individual may submit their FinCEN Identifier to any reporting company that must include the individual's data in a beneficial ownership report.

The individual, however, will be obligated to notify FinCEN when any of the individual's personal data changes in a way that would have triggered an amendment to the beneficial ownership report. An individual with a FinCEN ID will be obligated to notify FinCEN within 30 calendar days after any data change. Failing to do so will expose the individual to the same liabilities (such as a $500 per day fine up to a maximum of $10,000) that exist for the reporting company itself.

As a result, obtaining a FinCEN Identifier doesn't relieve an individual's duty to file an amendment within 30 days. Having the ID number simply shifts the 30-day reporting duty from the reporting company to the individual.

Individuals who are beneficial owners or company applicants should plan ahead for their filing duties under the CTA. Reporting companies that exist on January 1, 2024 will need to file their first beneficial ownership reports within one year from that date. Once filed, those reporting companies will be subject to the 30-day amendment rule for all their beneficial owners.

360 Degree Awareness for CTA Compliance

Because the beneficial ownership report includes specific items of personal data, even a small change could trigger the need for an amendment. Examples include a change in home address, the unique identification number or the unique ID document, such as would occur when an individual moves their home or renews their drivers license or passport.

In addition, because each person with "substantial control" is defined to be a "beneficial owner," reporting companies must alert the compliance officer of any change that might signal a change in substantial control. If two individuals are beneficial ownership through the substantial control test because they control the LLC that, in turn, has substantial control over a report company, any change in their company's governance (such as the admission of an additional member) could change the substantial control calculations. Such a change would trigger the need for the reporting company to amend its beneficial ownership report.

Substantial Control

FinCEN's regulations define "substantial control" as:

(i) Service as a senior officer of the reporting company;
(ii) Authority over the appointment or removal of any senior officer or a majority or dominant minority of the board of directors (or similar body);
(iii) Direction, determination, or decision of, or substantial influence over, important matters affecting the reporting company, including but not limited to:
(A) The nature, scope, and attributes of the business of the reporting company, including the sale, lease, mortgage, or other transfer of any principal assets of the reporting company;
(B) The reorganization, dissolution, or merger of the reporting company;
(C) Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget of the reporting company;
(D) The selection or termination of business lines or ventures, or geographic focus, of the reporting company;
(E) Compensation schemes and incentive programs for senior officers;
(F) The entry into or termination, or the fulfillment or non-fulfillment of significant contracts; and
(G) Amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws, and significant policies or procedures; and
(iv) Any other form of substantial control over the reporting company.

Visibility for the Compliance Officer

To manage CTA compliance, a reporting company's compliance officer must have 360-degree awareness of changes in circumstances that might trigger an amendment.

For example, Mr. Jones might have "substantial control" when the company files its first report because he is on the board of directors.

If Mr. Jones subsequently resigns, the company's compliance officer should immediately evaluate that fact. If Mr. Jones no longer has substantial control, the compliance officer must file an amendment to the beneficial ownership report.

In addition, changes in circumstances could extend upwards through the ownership structure. Changes in substantial control within a shareholder might cause a change in substantial control at the reporting company.

As a consequence, the compliance officer will need to have visibility up the ladder of corporate ownership to remain aware of changes that might trigger an amendment.

For example, suppose that 25% of the reporting company is owned by ACME Corporation. Suppose also that ACME Corporation has three individuals on its board. Each of these three individuals would be beneficial owners of the reporting company. As a result, if one of them resigns, the reporting company would need to file an amendment.

Traditional corporate governance does not give the reporting company visibility to changes within the company's shareholders. In order to manage a reporting company's CTA compliance obligations, CTA reporting companies will need for their compliance officers to have visibility into the governance of the reporting company's corporate shareholders.

Accordingly, to ensure that the reporting company has timely access to these kinds of corporate governance changes, reporting companies should adopt shareholder agreements that extend visibility throughout the corporate structure. A shareholder agreement, for example, should obligate the companies shareholders who are not natural persons to report on their beneficial ownership and substantial control through any further layers of corporate ownership to the ultimate level of individual beneficial ownership.

About The Author

Jonathan Wilson is the co-founder of FinCEN Report Company with 31 years of experience in corporate, M&A and securities matters. He is the author of The Corporate Transparency Act Compliance Guide (to be published by Lexis Nexis in the summer of 2023) and the Lexis Practical Guidance Practice Note on the Corporate Transparency Act.

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