Thursday, August 19, 2021
On January 1, 2021, Congress passed the Corporate Transparency Act (the “CTA“), Which requires all companies incorporated or incorporated in the United States to report beneficial ownership information to the Financial Crimes Enforcement Network (” Financial Crimes Enforcement Network “) (“FinCEN“), Subject to a few exceptions, by January 1, 2022 at the latest.
Although the CTA was designed to make it harder for anonymous mailbox companies to operate for criminal or tax evasion purposes, the wide web it casts results in it for the first time in history There are now federal reporting requirements for small businesses that require the collection and reporting of ownership information on an annual basis. The federal government will now have a database of beneficial ownership information of unsupervised companies that will be available to government agencies for law enforcement purposes.
The broad network that this law casts means that, for example, real estate companies (or individual investors) form a new unit for each project, large companies that form a new unit for each business venture, or even mom and pop shops that are formed a company to protect itself from liability becomes EVERYONE must regularly collect and report each company’s ownership information to FinCEN, unless that particular company (and not the company as a whole) falls under an exception. As you will see below, the exceptions are generally larger operating companies with sales of $ 5 million.
The scope of the CTA is intentionally broad and requires corporations, limited liability companies, or similar legal entities incorporated under state law or registered in the United States to comply with the reporting requirements of the CTA. However, the CTA provides exemptions for publicly traded companies and highly regulated companies that are already submitting ownership information to a government agency and specifically excludes: B. SEC, FDIC, etc.), (b) companies that employ more than 20 full-time employees or have annual sales in excess of $ 5 million and have a physical presence in the United States, or (c) nonprofits such as Churches and charities.
FinCEN records the name, address, date of birth and identification number (i.e. an unexpired driver’s license number, passport number or identity card) for each beneficial owner of the companies, which must be updated annually. FinCEN must create a register by January 1, 2022 and prescribe regulations. Eligible Entities are required to report (a) at the time of incorporation, (b) if the Qualified Entity was incorporated before the CTA came into force, then the Qualified Entities must report no later than two years after the Regulations came into effect, or (c) in the event of changes of the original CTA submissions, the Qualified Body must provide an updated report no later than one year after the date of the change.
It is not yet clear how each company will report post-CTA, but there is speculation that each state will separately manage the data collections required under the CTA.
The new law requires beneficial owners to be reported, but who is a beneficial owner under the new law? The CTA definition differs from that commonly used in other laws and regulations, such as securities laws. Under the CTA, a beneficial owner is an individual who, directly or indirectly, by contract, agreement, arrangement, relationship or otherwise exercises significant control over the company, or who owns or controls at least 25% of the ownership interests in the company. However, a beneficial owner does not include (a) a minor child, (b) an individual acting as an agent, agent, custodian or representative on behalf of another person, (c) an individual acting solely as an employee and their economic benefits result exclusively from their employment status, (d) a natural person whose sole interest is a right of inheritance, and (e) a creditor of the company, unless he exercises significant control or holds 25% of the shares in the Company.
The CTA requires the Treasury Secretary to create security logs to protect the confidentiality of the information collected. Once the beneficial ownership information is collected, FinCEN is prohibited from disclosing the information to governments and financial institutions for any other purpose than law enforcement, national security, or intelligence purposes, and is prohibited from providing public access to the information. Reports submitted under the CTA are secure and should not be disclosed under the Freedom of Information Act or similar laws.
Violations and Penalties
Any false or fraudulent information or failure to report or fill in beneficial ownership information will constitute a breach of the CTA. Such breach could result in a civil penalty of up to $ 500 for each day the breach persists and Fines up to $ 10,000 and / or imprisonment for up to two years. Unauthorized disclosure of beneficial ownership information by a government employee or third party recipient is also a violation subject to similar civil and criminal penalties up to $ 250,000 and / or imprisonment for up to five years.
Companies want to (a) begin collecting the available beneficial ownership information, (b) review governance documents to ensure there are no confidentiality clauses or other obligations that conflict with the requirements of the CTA, (c) a Consider revising governance documents to require owners to disclose required information; and (d) work with management and consultants to implement a process to meet CTA requirements. Davis | Külhau attorneys will continue to oversee the CTA regulations and will be available to business owners to understand what information to collect about beneficial owners and how to properly report it under the CTA.
© 2021 Davis | Külthau, sc All rights reservedNational Law Review, Volume XI, Number 231