Information about the Corporate Transparency Act

Beginning this year, most new and existing business entities and their owners and controlling persons will be subject to a new federal reporting requirement.

The new requirement affects business entities such as limited liability companies, limited liability partnerships, and other state-registered entities that have not previously been subject to a federal reporting requirement.  Nearly every business will be affected. We are writing to make you aware of the new regulations and to encourage you to carefully review your business entity involvement to confirm whether you are subject to the new regulations.  Serious civil and criminal penalties attach for failure to report under the new law.  This law is new, it is country-wide, and it is mandatory.

The new regulations are part of the Corporate Transparency Act (CTA), which requires business entities formed or registered to do business in the US to provide information about the people who ultimately own or control the entity to the Financial Crimes Enforcement Network (FinCEN, which is part of the Department of the Treasury). FinCEN will store that information in a database for use by law enforcement agencies. The database will not be publicly accessible.   The CTA follows similar requirements in other nations to combat illicit activity, such as corruption, money laundering, terrorist financing, and tax fraud.

Companies that are subject to the CTA must report the “Beneficial Owners” of the company.  This is not always a simple standard based on how much a person owns; it is also based on control.  A Beneficial Owner is someone who owns or controls at least 25% of a company OR has substantial control over the company, regardless of whether they have an ownership interest.  Substantial control includes senior officers, a person who has appointment or removal authority, important decision makers, and others.