The Corporate Transparency Act (CTA) broadly covers any corporation, limited liability company or “similar entity” that was created by filing a document with a Secretary of State, Tribal, or similar office. Existing firms will have filed Federal Income Tax returns demonstrating less than $5,000,000 in gross receipts or sales in the aggregate. Newly formed firms will have to automatically apply. The company will have less than 21 employees. There will be exceptions to this law.
Financial Crimes Enforcement Network, Bureau of the United States Department of the Treasury collected comments until Feb 7, 2022 to finalize the new law. The CTA law is expected to be promulgated later in 2022.
The purpose of the Transparency Act is to help prevent potential exploitation of United States corporations and limited liability companies for criminal gain, and to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and limited liability companies.
Certain companies are exempt from the reporting requirements including publicly-traded companies; banks, insurance companies, investment companies registered with the Securities Exchange Commission, and credit unions; public accounting firms; companies that employ more than twenty people, filed a tax return reporting gross receipts of more than $5 million, and have a physical presence in the US; nonprofit organizations; and any entity that is designated by Secretary of the Treasury to be exempt.
Companies subject to the CTA will be required to begin reporting to FinCEN in 2022. FinCEN, a bureau of the Department of the Treasury that is chiefly known for its role in implementing aspects of the Bank Secrecy Act among financial institutions, plans to carefully consider the earliest possible effective date after publication of its final implementing rule.
An applicant is “any individual who (A) files an application to form a corporation, limited liability company, or other similar entity under the laws of a State or Indian Tribe or (B) registers or files an application to register a corporation, limited liability company, or other similar entity formed under the laws of a foreign country to do business in the United States by filing a document with the secretary of state or similar office under the laws of a State or Indian Tribe.” 31 U.S.C. § 5336(a)(2).
A beneficial owner of an entity is an 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 not less than 25% of the ownership interests of the entity.
A beneficial owner does not include: (i) a minor child if the information of the child’s parent or guardian is reported; (ii) an individual acting as a nominee, intermediary, custodian or agent on behalf of another individual; (iii) an individual acting solely as an employee of the entity and whose control over or economic benefits from such entity is derived solely from the employment status of the person; (iv) an individual whose only interest in the entity is through a right of inheritance; or (v) a creditor of the entity, unless the creditor exercises substantial control over the entity or owns or controls not less than 25% of the ownership interests of the entity.
Beneficial owners will need to provide: