The Corporate Transparency Act And Its Impact On Construction Companies

compliance challenges with CTA

The Corporate Transparency Act (CTA), went into effect on January 1, 2024. The CTA represents a significant shift in how businesses across the United States, including California, manage their corporate structures and disclose beneficial ownership information. For California’s construction companies, which play a crucial role in the state’s economy, the implications of the CTA are particularly significant. This article delves into the effects of the Corporate Transparency Act on construction firms in California, exploring both the challenges and opportunities it presents.

What is the CTA?

The CTA is a law that has been passed to combat money laundering and terrorism financing. The premise is that a lot of smaller companies are used by criminal elements, both domestic and foreign to launder money received from illegal ventures by running it through smaller, legitimate companies. The CTA wants to prevent money laundering by identifying those who have a substantial ownership stake in a company or who are in a position of control.

The CTA requires an entity (called a “Reporting Company”) to file a report identifying its “beneficial owners” and “company applicant.” The report must be timely filed with the Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury. The information required includes the identities of individuals who directly or indirectly own or control at least 25% of the company.

What is a Reporting Company?

A Reporting Company is defined as follows:

  • A “Domestic Reporting Company” means a corporation, Limited Liability Company (LLC) or other similar entity that is created by the filing of a document with the secretary of state or a similar office under the laws of a state or Indian Tribe;
  • A “Foreign Reporting Company” means an entity that is: (A) a corporation or limited liability or other entity; (B) formed under the laws of a foreign country; and (C) registered to do business in any state or tribal jurisdiction by the filing of a document with a Secretary of State or any similar office under the law of a state or Indian tribe.

Who is Subject to CTA?

Mainly smaller non-regulated businesses are subject to the CTA. Some smaller construction companies and certainly related investment companies may be subject to CTA. The reporting is required from those companies that have fewer than 20 employees, and less than $5 million dollars in annual sales. Please see below for the list of companies exempted and definition of a large company falling within the exemptions.

Which Companies are Exempted from the CTA?

There are 23 exemptions most of which we summarize in the following categories:

  • Securities, investment, and money service companies;
  • Governmental authorities, Banks, Credit unions
  • Money services companies, venture capital fundraisers
  • Investment companies and advisors
  • State licensed insurance producers
  • CPA firms
  • Public utilities companies
  • Tax Exempt entities, their subsidiaries and those who service them
  • Large Operating Companies (see below for definition of a large company)
  • Inactive entities

For a full list please see section 1010.380(c)(2) of the NDAA (National Defense Authorization Act)

What Constitutes a Large Operating Company that Can be Exempted?

This is a company that:

  • Employs more than 20 employees full time in the US; and
  • In the previous year filed federal income tax returns in the US showing more than $5 million dollars in gross receipts or sales in the US (excluding gross receipts from outside US); and
  • Has an operating presence at a physical office within the US.

What Information Must be Reported?

A reporting company must provide the following information for each beneficial owner and each applicant (“beneficial ownership information”):

  • full legal name;
  • date of birth;
  • current residential or business street address; and
  • a unique identifying number from an acceptable identification document (passport, driver’s license or other government issued identification document) or a FinCEN identifier.

If an exempt entity has a direct or indirect ownership interest in a reporting company, the reporting company or the applicant must only report the name of the exempt entity instead of the beneficial ownership information set forth above.

The Corporate Transparency Act does not quantify the level of ownership by an exempt entity that requires reporting. In prescribing regulations under the Corporate Transparency Act, Treasury should set forth a minimum level of ownership (such as 25%) that would give rise to a reporting obligation by the reporting company or an applicant.

When Does The Report Need To Be Filed?

The final CTA rule took effect on January 1, 2024. Here is the timetable to file:

Existing Companies:within one year, so no later than January 1, 2025.
New Companies:within 90 days (Any company organized since January 1, 2024)
Companies that are no longer exempt:within 30 days of the date they no longer meet criteria
Updates for change in information:within 30 days of change in information
Errors in filing:within 30 days they become aware of the error

Who is a Beneficial Owner?

  • Anyone who either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of the reporting company.
  • The rule defines ‘ownership interest’ broadly which includes shares or stock, equity, capital or profit interest, futures, options, or any other contract, arrangement or relationship to establish ownership.
  • Ownership can be held directly or indirectly
  • There are guidelines of how to calculate the interests of a reporting company.

What does Substantial Control mean?

Any of the following can establish substantial control:

  • Serving as a senior officer
  • Having authority to remove senior officers or a majority of the board of directors
  • Directing, determining, or having substantial influence over important decisions for the report company such as buying, selling the company assets, dissolving or merging, authorizing major expenditures, investments or issuance of equity, amending corporate documents.

Who is responsible for filing information?

According to FinCen, a Reporting Company is responsible for filing and will be required to make a certification. Any individual who files the report as an agent of the Reporting Company, will certify on the Reporting Company’s behalf.

What are the Penalties for Failure to File?

  • It is unlawful to willfully fail to report completed or updated beneficial ownership information, or willfully provide false/fraudulent information.
  • There are multiple penalties, including civil penalty of $500 per day for each day the violation continues, a fine up to $10,000, imprisonment for up to 2 years, or both.

What Should You Do Now For Your Company?

  1. Determine if you are within the exemptions or need to file
  2. For existing companies, file by end of 2024
  3. For new companies, file within 90 days of organization
  4. Remember to update information any time you have a change in your company
  5. Remember that even LLCs that are used for real estate investments are subject to CTA, so they should file

Impact on the Construction Industry, Challenges and Opportunities:

As a construction company majority stockholder or beneficial owner, you are now responsible for conducting a proper analysis to determine if your company is subject to the CTA or exempted. More likely than not, you will need an attorney who knows about the CTA and its impact on the construction industry to analyze your specific situation and help you with this important determination because the penalties for non-compliance are so high.

Although complying with the CTA may seem like a challenge, doing the analysis also presents an opportunity for you to have a competent attorney review your company’s corporate structure and assess whether it serves the needs of your business in its current state.

Pre-publication Update:

After the drafting of the above article, some new events happened that require this update.

On March 1, 2024, a U.S. District Judge in Alabama issued a judgment holding that the Corporate Transparency Act (CTA) is unconstitutional because it exceeds the Constitution’s limits on Congress’ power.

Further, FinCEN is permanently enjoined (forbidden) from enforcing the CTA against the people who filed that case.

This ruling is persuasive, but is not presumptive outside of the U.S. Northern District of Alabama. What does this mean? The ruling is controling and has to be abided by in Northern District of Alabama, but as to California, it does not control, although the courts will give it some deference for their decisions.

On March 4, 2024, Financial Crimes Enforcement Network (“FinCEN”) issued guidance in response to the court’s opinion, stating that “FinCEN will comply with the court’s order as long as it remains in effect.” FinCEN acknowledged that the plaintiffs in the case— National Small Business Association (“NSBA”), members of the NSBA, and others in the case—will not be required to report beneficial ownership to FinCEN as a result of the Order. However, FINCEN’s silence as to other non-plaintiff reporting companies implies that FinCEN expects all others to comply with the CTA. Additionally, FinCEN stated that it is interpreting the court’s decision to apply only to persons who joined the NSBA prior to the issuance of the decision, again implying that a person cannot now join the NSBA to get the relief.

The broader effects of the court’s opinion remain uncertain. As the Court noted, Congress could have “easily” written the CTA to pass constitutional muster, raising the possibility that Congress may, down the road, address this gap in the legislation. Further, the court did not address the plaintiffs’ claims under the First, Fourth, and Fifth amendments, nor were other avenues of challenge (e.g., APA compliance) pursued in this case, meaning that even an “easy” fix by Congress may not resolve all concerns with the lawfulness of the CTA and its implementation.

More likely is the possibility that across the country, people will file similar lawsuits seeking a similar result— increasing the likelihood of drawing the US Supreme Court into this.

At this time, however, the CTA remains in effect for all covered entities, aside from the NSBA plaintiffs and nothing has changed our article’s conclusions. We will provide future updates on any new court cases, or announcements from FinCEN about how these developments will impact a party’s duty to report.

Feel free to contact us if you have any questions or need clarification on any of these issues.


This article is informational only and meant to provide guidance. It is not meant to be legal advice and it does not create an attorney-client relationship. For what to do in your specific situation, please consult with a qualified Construction Law attorney.


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