By: Kevin Levy, Shareholder & Chair, Technology Transactions, and Savannah Padgett, Law Clerk
Miami, Fla. – February 2, 2021 – What is the new Corporate Transparency Act?
The Corporate Transparency Act (CTA) creates a system for reporting information on controlling beneficial owners of U.S. companies. Pursuant to the CTA, these beneficial owners and companies will be required to submit beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
Under the CTA, a beneficial owner is an individual who owns or controls 25% or more of the ownership interest of a company, exercises substantial control, or receives substantial economic benefits from the assets of a company.
Who needs to submit information to FinCEN?
- Individuals filing with a secretary of state to form a new company or registering a company to do business in the U.S.
- Existing companies (corporations, LLCs, and similar entities) that were created by filing with a secretary of state in the U.S. or foreign companies that are registered to do business in the U.S.
Certain individuals are exempt from the reporting requirement. These include minors, individuals acting as a nominee, intermediary, custodian, or agent, an individual acting solely as an employee, an individual whose interest is inherited, and creditors that do not meet the beneficial ownership definition.
Where a company falls into a category that exempts it from reporting beneficial ownership information, the individual forming or registering the company or the existing company must submit a certification to FinCEN that the company is exempt.
What information needs to be reported?
Beneficial owners and companies must report a list of beneficial owners, as well as the following for each beneficial owner (1) legal name, (2) date of birth, (3) current residential or business address, and (4) identification number.
When do individuals and existing companies need to report this information?
The U.S. Treasury must pass and put rules into effect by December 31, 2021, at which time reports will commence being required. Existing companies will have two years to submit initial reports while individuals forming or registering new companies will be required to submit reports at the time of formation or registration. Companies will be required to submit annual reports that identify the company’s beneficial owners and changes in beneficial ownership.
Will beneficial ownership information be publicly available?
Beneficial ownership information will be used solely for law enforcement purposes and made available to comply with requests made by financial institutions for obligations imposed by law after the institution has received consent from the company.
Where will beneficial ownership information need to be reported?
FinCEN has not yet set up a specific portal to submit beneficial ownership reports. However, individuals and companies will likely have to first set up a BSA E-Filing account on the FinCEN website to access the filing portal when it goes live.
We are closely monitoring the rules implementing the CTA. Please do not hesitate to check with us if you have any questions.