An Introduction to the U.S. Corporate Transparency Act

In January 2021, the U.S. Corporate Transparency Act (CTA) was enacted into law. In December 2021, the first draft of the regulations was published, with one year to issue final regulations. Meaning that come the start of 2023, the CTA’s impact will officially commence. 

What is the CTA? 

The Corporate Transparency Act was enacted to identify and stop financial crimes. Generally, businesses in the U.S have been able to organize and operate without needing to disclose ownership information to the federal government. With the new regulations, the U.S. will join the other G20 countries with ultimate beneficial ownership (UBO) programs.

The CTA will require LLCs, corporations, and other reporting entities to file a report with Financial Crimes Enforcement Network (FinCEN). This report will include all beneficial owners and will exist in a private database.

Failure to comply with the CTA may result in a fine of up to $10,000 or up to [3] years jail time. 

What is a Beneficial Owner?

A beneficial owner of a company meets the following criteria: 

• exercises substantial control over the entity; or 
• owns or controls not less than 25 percent of the ownership interests of the entity.

Substantial control includes, but is not limited to:

• Serving as a senior officer
• Having authority over the appointment or removal of senior officers or a majority or dominant minority of the governing body
• Directing, determining, or deciding, or having substantial influence over essential matters affecting the company.

What Does This Mean for Entities?

Software for CTA Compliance

According to the NFIB research, FinCEN’s new beneficial ownership regime will add 2.5 hours per entity to gather the data required to comply with the CTA and thousands of dollars a year in labor costs. 

Business professionals are encouraged to invest in technology to mitigate these costs and save time, lest they risk business-critical disruption. Athennian’s cloud-based business entity management solution offers automated data collection for UBOs and applicants, automated reports, letters, and other documents, and a centralized system for swift and streamlined collaboration. Contact an entity management expert to learn more about how your organization can leverage Athennian for CTA compliance. 

For more information on the Corporate Transparency Act, access our on-demand webinar featuring Michael Kline, Partner & Assistant General Counsel at Fox Rothschild. 

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