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04.11.22

Corporate Transparency Act — What you need to know and prepare for now

By Shawntel Randi

On December 7, 2021, the Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking regarding the Corporate Transparency Act (CTA), which gave the public until February 7, 2022, to review and comment on the proposed rules. As the period for comments has ended and the final regulations may be enacted in the near future, advisors should determine which entities trigger reporting obligations for their beneficial owners and applicants.

Under the CTA, a “reporting company” must disclose certain personal identifying information of its “beneficial owners” and “applicants.” An entity will be classified as a reporting company if it is a domestic entity created by filing a document with the secretary of state (or similar office) in any US state or a foreign entity that is formed under the laws of a foreign jurisdiction and has registered to do business within the United States. Certain entities are exempt from the definition of a reporting company, including “large operating companies” and many types of financial institutions that are already subject to regulations requiring disclosure of beneficial ownership information.

A beneficial owner 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 at least 25% of the ownership interests of the entity. An applicant is an individual who files a document to form a domestic entity or registers a foreign entity to do business in the United States. An individual that is deemed to be a beneficial owner of or applicant for a reporting entity must provide his or her: (i) name, (ii) date of birth, (iii) residential address, (iv) unique identifying number, and (v) his or her photograph from an acceptable government-issued identification document (e.g., passport or driver’s license). Alternatively, an individual can obtain a “FinCEN identifier” and provide this number in lieu of the information listed above.

A primary concern for advisors should be the brief window to come into compliance with the reporting obligations set forth under the CTA if the regulations are finalized as proposed. A reporting entity formed after the effective date (which will not be set until the final regulations are released) will have 14 days from its date of formation if it is a domestic entity, or 14 days from the date it registers to do business in the United States if it is a foreign entity, to disclose the required identifying information for the entity and its beneficial owners and applicant. If a reporting entity was created before the effective date, it must disclose the required information within one year of the effective date.

Considering this brief window to comply with the CTA reporting requirements, advisors should identify the beneficial owners and applicants of reporting entities now and begin to gather the necessary identifying information for such individuals.

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Shawntel Randi

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