Understanding the Corporate Transparency Act: A Guide for Estate Planning Clients
The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act for Fiscal Year 2021, represents a significant shift in corporate regulatory compliance. As an estate planning attorney, it is crucial to ensure that my clients are aware of this legislation and understand how it may impact their business entities. This article aims to provide a comprehensive overview of the CTA, highlighting key compliance requirements and identifying the types of owners who must adhere to this new regulation.
What is the Corporate Transparency Act?
The CTA is designed to combat illicit activities such as money laundering, terrorism financing, and other forms of financial crime by increasing transparency in corporate ownership. It mandates that certain business entities disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This information is intended to create a centralized database accessible to law enforcement and other regulatory agencies.
Who Must Comply with the CTA?
The CTA applies to a wide range of entities, including corporations, limited liability companies (LLCs), and similar entities created under state law. However, there are several categories of entities that are not required to disclose the information needed:
- Publicly traded companies.
- Banks and credit unions.
- Insurance companies.
- Registered investment companies and advisers.
- Tax-exempt entities.
- Subsidiaries of certain exempt entities.
Key Definitions Under the CTA
Beneficial Owner: A beneficial owner is any individual who, directly or indirectly:
- Exercises substantial control over a reporting company, or
- Owns or controls at least 25% of the ownership interests of the entity.
Substantial Control includes:
- Serving as a senior officer.
- Having authority over the appointment or removal of any senior officer or a majority of the board of directors.
- Directing, determining, or having substantial influence over important decisions made by the entity.
Reporting Requirements
Entities subject to the CTA must report specific information about their beneficial owners to FinCEN, including:
- Full legal name.
- Date of birth.
- Current residential or business street address.
- A unique identifying number from an acceptable identification document (e.g., passport or driver’s license).
The initial report must be filed within a prescribed time frame, with updates submitted promptly upon any changes to the reported information. For entities that existed prior to January 1, 2024, reporting must be completed by December 31, 2024. For entities formed in 2024 and after, reporting must be completed within 30 days. It is also important to note that any changes in beneficial ownership, such as through a sale, a merger, or issuing shares as compensation, must be reported within 30 days of the change.
Conclusion
The Corporate Transparency Act introduces a new era of transparency in corporate ownership, aiming to enhance the fight against financial crime. If you own or are involved in a business entity or are the trustee of a trust that owns a business entity, it is important to talk to your business attorney and make sure your business is in compliance with CTA.
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