Insights

Corporate Transparency Act Imposes Beneficial Ownership Reporting Requirements

 

The Corporate Transparency Act (CTA) imposes new beneficial ownership reporting requirements on many companies. The stated purposes of the CTA include the collection of beneficial ownership interest information for corporations, limited liability companies and similar entities.

As soon as the implementing regulations are promulgated by the Secretary of the Treasury, reporting companies must file reports with the Financial Crimes Enforcement Network of the Department of the Treasury (FinCen) identifying all beneficial owners and applicants and report the individual’s full legal name, birthdate, current address, and a “unique identifying number from an acceptable identification document” or an FinCEN (Financial Crimes Enforcement Network) identifying number.

Who is required to file reports?

The reporting requirements of this new CTA apply to all reporting companies unless they are exempt. According to it, a reporting company is defined as "any corporation, limited liability company or similar entity that is (i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe."

The CTA also specifies some types of entities that are excluded from the beneficial ownership reporting requirements. These entities include, among others: public companies; governmental entities; banks and bank holding companies; credit unions; broker dealers; registered investment companies; registered investment advisers; any entity that (A) has more than 20 full-time employees in the United States, (B) filed a federal tax return that reported more than $5 million in gross receipts or sales, and (C) has an operating presence at a physical office in the United States.

Who are the beneficial owners and applicants?

 

A beneficial owner of a reporting company is "any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise – (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity."

An applicant is any individual who files an application to form a reporting company or registers or files an application to register a foreign company to do business in the United States.

 

There are many issues of scope, definition and interpretation in the CTA which are expected to be addressed by the Treasury's upcoming implementing regulations. If you have doubts about how this Corporate Transparency Act can affect your business, contact our advisors for more information.

 

Full source: The National Law Review