What is the California Corporate Transparency Act (CTA)?

While the Corporate Transparency Act (CTA) went into effect on January 1, 2024, similar legislation — Senate Bill 1201 — was recently passed at the state level. If approved by the governor, this California version of the Corporate Transparency Act would impose additional disclosure requirements on California companies. If you’re a corporate owner in California, it’s important to understand how these new regulations could impact your company. The legislation is expected to go into effect on January 1, 2026.

What is the California Corporate Transparency Act?

The California Corporate Transparency Act was introduced in an effort to increase transparency among California corporate owners. It would require all domestic companies, foreign corporations, and limited liability companies to provide certain beneficial ownership information (BOI) regarding the entity. Under the legislation, a beneficial owner is defined as a person who holds 25% or more of a corporation’s equity interests or an individual who exercises “substantial control” over the business.

The following information would be required to be disclosed in the corporation’s annual Statements of Information under the California Corporate Transparency Act:

• Name of the beneficial owner; and
• Business address; or
• Residence address of the beneficial owner.

For LLCs, the name and complete business or residential address of any manager and chief executive must be included. If a manager has not been appointed, this information must be submitted for the LLC members. Notably, this legislation would change the current requirements under California’s General Corporation Law. The law currently requires that entities authorized to conduct business file a statement of information within 90 days after filing the original articles — but only minimal information about the identity of the business and the individuals running it needed to be disclosed.

Companies in California should consider how the new law would impact their business. For instance, they might consider allocating ownership interests in a different way and bringing individual ownership levels below the threshold of 25%. Nevertheless, it may still be difficult to ensure that a person is not exercising “substantial control” over the entity.

What is the Federal Corporate Transparency Act?

In contrast with the California CTA which provides BOI to the public, the Corporate Transparency Act at the federal level was established to provide law enforcement with BOI to detect, prevent, and punish terrorism, money laundering, and other types of misconduct committed by businesses. The federal act is part of the Anti-Money Laundering Act of 2020 and provides FinCEN with the resources to take action against anonymous shell companies.

Under the federal CTA, a reporting company is a corporation, LLC, or other entity that is created by filing a document with the Secretary of State in the applicable jurisdiction. Under the federal CTA, companies that are exempt from the reporting requirements include issuers of securities registered under Section 12 of the Securities Exchange Act of 1934 and exchanges registered under Section 6 or Section 17A of the Exchange Act. Other exemptions include banks, credit unions, investment advisors registered with the SEC, insurance companies, utility companies, tax-exempt charities, brokers or dealers registered under Section 15 of the Exchange Act, and various other entities.

Reporting companies must provide the full names of each beneficial owner, their dates of birth, their residential or business address, and a unique identifying number from an acceptable identification document — such as a passport, driver’s license, or government issued ID. The definition of a beneficial owner under the federal Corporate Transparency Act is the same as the California CTA.

How Does the California Corporate Transparency Act Differ from the Federal CTA?

There are several critical ways the California Corporate Transparency Act differs from the federal law. Significantly, while the federal CTA requires certain entities to submit beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), it is not public. This differs from the California CTA which makes BOI publicly available. Specifically, the names and addresses of beneficial owners would be published on the California Secretary of State’s website.

The federal CTA requires an initial BOI filing. Updates must be made within 30 days if there are any changes in the required information unlike the California legislation would require biannual updates. In addition, although there is no fee to file a BOI report with FinCEN under the federal act, California’s CTA requires corporate owners to submit a fee when filing.

Contact an Experienced California Corporate and Business Attorney

If you’re a corporate owner, it’s crucial to be aware of your reporting obligations under both state and federal law. The business litigation attorneys at White & Bright, LLP are committed to assisting companies of all sizes in California with a wide variety of business matters, including advising regarding legal and regulatory compliance. We welcome you to contact or call us at (760) 747-3200 to learn more about our legal services.