[UPDATED 11/21/2022: FinCEN Published Final Rule]
Corporate Transparency Act Overview Part 1: Required Disclosures
In December 2021, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) released a notice of proposed rulemaking for companies subject to the Corporate Transparency Act (CTA). The proposed rule can be found in its entirety here. This is the first of a three-part series that will look into the CTA’s requirements and what it means for businesses.
The core of the CTA establishes reporting requirements for certain new and existing domestic companies and foreign companies registered to do business in the United States. Chief among these reporting requirements is the disclosure of the Beneficial Owners of a company. This information will be maintained by the federal government in a centralized database.
What Information needs to be Disclosed Under the Corporate Transparency Act?
Under the CTA, companies would need to submit to FinCEN the: (1) full legal name, (2) date of birth, (3) current residential or business street address and (4) a unique identifying number from an acceptable identification document, such as a passport, or a FinCEN identifier, for all Beneficial Owners of the company and the Company Applicant.
Who Is a “Beneficial Owner”?
A Beneficial Owner is any individual who meets at least one of two criteria: (1) exercising “substantial control” over the reporting company either directly or indirectly, or (2) owning or controlling at least 25% of the ownership interest of the company.
Companies should carefully consider who is in “substantial control” of the company, as it could be more than just owners. The regulations set forth three specific indicators of substantial control: (1) service as a senior officer of a reporting company; (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of a reporting company; and (3) direction, determination or decision of, or substantial influence over, important matters of a reporting company.
It is worth noting that an employee of a company is not a Beneficial Owner to the extent such employee is “acting solely as an employee,” and whose “control over or economic benefits from” the company are derived solely from the employment status of the person.
Who is the “Company Applicant”?
A Company Applicant is defined as an individual who files a document that creates a domestic reporting company or who first registers a foreign reporting company. The proposed regulations specify that a Company Applicant includes anyone who directs or controls the filing of the document by another. The Company Applicant is also required to provide the information set forth above.
Businesses Should Act Now to Prepare for CTA Requirements
It is imperative businesses understand the CTA’s requirements, determine whether they are required to report any information, and, if so, begin preparations to file these reports. Please contact Alex Jones (firstname.lastname@example.org; 216.736.7241) or Samantha Cira (email@example.com; 216.736.7232) for more information and assistance in further understanding and responding to the CTA and to ensure that your business will be in compliance with the new regulations.