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The Corporate Transparency Act (the “CTA”)

As an update to our previous newsletter below regarding The Corporate Transparency Act (the “CTA”), Cameron & Mittleman LLP is pleased to offer CTA compliance and reporting services to you.

As the reporting process is new to all, we will begin by providing these services to newly-formed entities (formed on January 1st, 2024 or later) which have 90 days from formation to report.

We will simultaneously create the necessary framework and processes to roll out CTA compliance and reporting services to all existing companies (formed prior to January 1st, 2024), which currently are scheduled to report by January 1st, 2025.

Please contact Tom Humphreys immediately if you would like assistance with any newly-formed entities, and please stay tuned/stand-by as we implement these services for existing companies:

401-331-5700

[email protected]

The Corporate Transparency Act (the “CTA”) is scheduled to go into effect on January 1, 2024. The purpose of the CTA is to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.

To implement the CTA, FinCEN (the Treasury Department’s Financial Crimes Enforcement Network) will establish and maintain a national registry of beneficial owners of entities that are deemed “reporting companies.” Nearly all small business entities (for these purposes, businesses with less than 20 employees and $5,000,000 of annual revenues) will be deemed “reporting companies” under the CTA and subject to its filing requirements.

The CTA defines a beneficial owner of an entity as any individual who, directly or indirectly, (1) exercises substantial control over the entity or (2) owns or controls not less than 25 percent equity in the entity. As stated in the Regulations promulgated under the CTA to-date, under the “substantial control” prong of the beneficial owner definition, the following persons are beneficial owners of a reporting company:

  • any senior officer,
  • any member of the board of directors
  • any individual with authority to appoint or remove a majority of the board of directors
  • any individual who “directs, determines or has substantial influence over important decisions”
  • any individual who exercises “any other form of substantial control”
  • any individual exercising indirect control through: ownership or control of a majority of the voting power; control over “one or more intermediary entities that … exercise substantial control over” the company; and “arrangements or financial or business relationships, whether formal or informal”

In each report to FinCEN, a reporting company must provide the following information for each beneficial owner: full name; date of birth; complete current residential street address; ID number and jurisdiction of issuance for one of the following: US passport, state, local, or Indian tribal identification document, or state-issued driver’s license; and an image of the document from which the ID number was obtained.

Beginning January 1, 2024, new reporting companies will be required to report beneficial ownership information to FinCEN within 90 days of formation (the 90 day reporting period will automatically shorten to 30 days on January 1, 2025). Existing entities must report such information by January 1, 2025. A reporting company must update its information within a year of any change to its beneficial ownership.

FinCEN will be responsible for storing the information collected pursuant to the CTA in a secure private database and the information will be available from a request only by (1) a federal law enforcement agency; (2) a state, local, or tribal law enforcement agency (if authorized by a court order); (3) a federal agency on behalf of a foreign country (if the request is pursuant to an international agreement); or (4) a financial institution for customer due diligence purposes and if authorized by the reporting company.

While there has been limited legislative activity intended to provide some relief, the CTA is still set to go-live on January 1, 2024. Given that FinCEN has not yet finalized the registry website or the reporting form itself, we would not be surprised if the implementation date is retroactively delayed by Congressional action in 2024. Even if delayed, however, we do not expect the substance of the CTA to change significantly, thus efforts to educate and prepare now would not be wasted effort. Our expectation is that once implemented, accountants (in collaboration with the reporting company’s legal counsel) will serve as the primary compilers of the required information and filers of the beneficial ownership reports to the registry on behalf of the reporting companies.

The corporate attorneys at Cameron & Mittleman LLP are here to answer any questions you may have regarding the CTA and its applicability to your business, and to work with you in achieving compliance with the CTA once implemented. We will strive to keep you updated with any changes or developments. Please contact Tom Humphreys with any questions. Tom may be reached by phone at 401-331-5700 or e-mail at [email protected].