The U.S. Corporate Transparency Act: A New Era for Beneficial Ownership Disclosure

Why tech companies with US entities need to prepare before 1 January 2024

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From 1 January 2024, the U.S. Corporate Transparency Act (CTA) will require many US and foreign companies doing business in the United States to disclose their "Beneficial Owners" and certain company formation details to the Financial Crimes Enforcement Network (FinCEN). For global tech businesses that rely on U.S. entities for operations, fundraising, IP holding, or market access, this marks a significant shift in compliance obligations.

While the CTA aims to combat money laundering, terrorist financing, and other illicit activity, its reach extends well beyond high-risk sectors. Many early-stage tech companies, venture-backed startups, and holding structures will be affected — often in ways that are easy to overlook.

Who Must Report?

The law applies to "Reporting Companies", defined as:

• Corporations, LLCs, or similar entities formed by filing with a U.S. state, territory, or tribal authority; and

• Foreign entities registered to do business in the U.S.

There are exemptions for certain categories, including:

• Non-profits;

• Publicly traded companies;

• Subsidiaries of exempt entities;

• Large operating companies (with over 20 US-based full-time employees, over $5 million US gross receipts, and a physical office in the US);

• Inactive entities meeting certain conditions.

For many global tech companies, these exemptions will not apply — especially if the U.S. entity is a lean Delaware corporation set up for fundraising or IP purposes.

Who Counts as a Beneficial Owner?

Under the CTA, a Beneficial Owner is any individual who:

• Directly or indirectly owns or controls 25% or more of the ownership interests; or

• Exercises substantial control over the company.

The ownership test is generally straightforward — though companies must remember it covers not only shares but also convertible instruments, warrants, and certain debt arrangements.

The substantial control test, however, is broader and more nuanced. It includes senior officers, individuals with authority to appoint or remove leadership, key decision-makers, and anyone with other comparable influence over the company’s affairs. Because this test is fact-specific and includes a catch-all provision, it has generated significant discussion and uncertainty among compliance professionals.

Understanding the “Substantial Control” Controversy

While the concept seems clear on paper, determining who actually exercises substantial control is often challenging. Titles alone do not tell the full story — authority can flow from governance rights, contractual arrangements, or operational realities.

Under FinCEN regulations, examples of substantial control include:

• Serving as a senior officer (CEO, CFO, COO, general counsel, etc.);

• Having the authority to appoint or remove senior officers or a majority of directors;

• Acting as an important decision-maker for significant company matters;

• Holding any other arrangement or relationship that confers similar influence (the “catch-all” provision).

In practice, this can potentially capture:

• A product manager with control over critical budgets or strategic direction;

• A board observer with veto rights over major transactions;

• An investor-appointed committee member who shapes operational priorities;

• An independent contractor serving as the main legal counsel or finance director.

For tech companies, the challenge is heightened by matrix management structures, distributed leadership teams, and significant investor oversight. Two employees with similar positions might be treated differently depending on their actual influence and decision-making powers.

FinCEN’s guidance advises erring on the side of inclusion if there is doubt, but over-reporting can create privacy concerns and administrative burdens, especially given the 30-day update requirement for changes. For these reasons, mapping governance rights and operational authority before 1 January 2024 is critical — particularly for startups and scale-ups where formal titles may not reflect real influence.

What Information Will Be Reported?

Reporting Companies must submit:

• UBOs’ full legal names, dates of birth, residential addresses, and ID numbers from an accepted document (passport, driver’s license, etc.);

• Company details, including legal and trade names, principal U.S. business address, jurisdiction of formation, and tax ID number;

• For newly formed entities after 1 January 2024 — "Company Applicant" information (the individual(s) who filed or directed the filing).

All changes must be reported within 30 days.

Filing Deadlines and Penalties

• Companies created before 1 January 2024 must file by 31 December 2024.

• Companies formed on or after 1 January 2024 must file within 30 calendar days of creation or registration.

Filings will be electronic via FinCEN’s secure portal.

Failure to report or willfully filing false information can result in civil penalties of up to $500 per day and criminal penalties of up to $10,000 and/or two years’ imprisonment.

Why This Matters for Tech and Digital Industries

Tech companies, especially those operating internationally, often maintain a network of special-purpose U.S. entities for holding intellectual property, employing US-based talent, or accessing capital markets. Under the CTA, these structures will be subject to scrutiny, and any change in ownership or leadership will require prompt reporting.

Beyond the compliance burden, the CTA will create a centralized federal database of beneficial ownership information accessible to U.S. and certain foreign authorities. While not public, it will be available to law enforcement, regulators, and financial institutions. This means greater transparency in M&A due diligence, banking relationships, and even investor background checks.

For venture-backed startups, the “substantial control” test can unexpectedly bring in lead investors or board appointees, so careful analysis of governance rights is critical.

Steps Tech Companies Should Take Now

1. Inventory your U.S. entities, including subsidiaries, holding companies, and dormant structures.

2. Assess exemptions – determine if any entity qualifies as a large operating company or other exempt category.

3. Identify Beneficial Owners and Company Applicants – review cap tables, governance documents, and financing agreements.

4. Gather required data – secure ID copies, addresses, and other details in advance.

5. Establish a change-tracking process – ownership and control changes will trigger tight reporting deadlines.

6. Coordinate with investors and partners – ensure they understand their potential reporting role.

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Looking Ahead

While the CTA’s database is not public, the compliance requirements are real and the penalties significant. Many tech executives underestimate the reach of “substantial control” and the potential compliance touchpoints in corporate restructurings, fundraising rounds, or board changes.

If your company has a U.S. entity, no matter how small, it’s time to act. Our team advises international tech firms on entity compliance, ownership structuring, and regulatory readiness in light of the CTA and other transparency initiatives worldwide. Contact us to assess your exposure and implement a tailored compliance plan before January 2024.