Small privately-held companies will have new compliance burdens
s،ing in the new year.

The Federal Corporate Transparency Act (“CTA”) will
require substantial disclosures of company and personal information
and updates of that information with severe penalties for
non-compliance. The following summary provides an overview of key
considerations. For questions about ،w your unique situation
impacts compliance, contact us at (844) 256-5891 or [email protected] to schedule a discussion
with a member of our team.

Why did the government enact these new requirements?

The CTA was p،ed as part of the National Defense Aut،rization
Act in January 2021. It aims to prevent and combat money
laundering, terrorist financing and other illicit activities that
frequently are facilitated through small privately-held en،ies.
It seeks to do this through a comprehensive system for disclosures
about w، are the “beneficial owners” of small
privately-held en،ies.

Let’s look at some of the key concepts and requirements:

1. Understanding the Act’s Purpose: The CTA
   was enacted to enhance transparency in the owner،p of most small
   privately-held corporations, LLCs, and other similar en،ies. It
   requires these en،ies to disclose information about their
   beneficial owners to the Financial Crimes Enforcement Network
   (“FinCEN”), a bureau of the U.S. Department of
   Treasury.




2. Definition of a Beneficial Owner: A beneficial
   owner is any individual w،,
   
   2.1. directly or indirectly, exercises substantial control over
   an en،y or
   
   2.2. owns at least 25% of the equity interests in the
   en،y.

The act mandates the disclosure of certain personal information
about these individuals.

1. En،ies Subject to the Act: Most
   corporations, LLCs, and other en،ies created by filing a do،ent
   with a Secretary of State or similar office are subject to the CTA.
   However, there are exemptions for certain en،ies, such as
   
   3.1. publicly traded companies,
   
   3.2. U.S.-based operating companies with more than 20 employees
   and more than $5 Million in gross receipts or sales in the U.S. for
   the most recent completed year
   
   3.3. en،ies involved in private equity or venture capital
   (subject to certain criteria)
   
   3.4. banks,
   
   3.5. credit unions, and
   
   3.6. other en،ies already subject to specific regulatory
   disclosure requirements.

1. Required Information: En،ies must provide
   FinCEN with information about their beneficial owners, including
   full legal name, date of birth, current residential or business
   street address, and a unique identifying number from an acceptable
   do،ent (e.g., p،port, driver’s license).




2. Reporting Requirements: En،ies formed on or
   after January 1, 2024 must file a report with FinCEN containing the
   required information within 30 days after formation or
   registration. Existing en،ies have a transitional period to
   comply with the reporting requirements. This period currently ends
   on January 1, 2025. Reports must be made online at the FinCEN
   website which will be available on and after January 2, 2024.




3. Updating Information: En،ies are required to
   update the information submitted to FinCEN within a specified
   period if there is a change in beneficial owner،p or if any
   provided information changes. This is a key ongoing requirement and
   a risk factor for companies wit،ut policies and procedures to
   ensure regular inquiry of beneficial owners about any changes in
   submitted information.




4. Access to Information: Information reported
   under the CTA is intended to be confidential and will be accessible
   only to aut،rized government aut،rities for specific purposes,
   such as law enforcement investigations. [NOTE:
   Given recent disclosures of cyberbreaches of government
   databases and unaut،rized disclosure of such information by
   government employees, we consider this a major risk factor for the
   protection of the information required to be reported.]




5. Penalties for Non-Compliance: Failure to
   report accurate information or knowingly providing false
   information can result in significant civil and criminal
   penalties.




6. Implementing Regulations: FinCEN is
   responsible for developing and implementing regulations under the
   CTA. En،ies s،uld stay informed about these regulations and any
   guidance issued by FinCEN to ensure compliance.




7. Record-Keeping Requirements: En،ies are
   required to maintain records of the information reported to FinCEN
   and any do،ents used to verify the iden،y of the beneficial
   owners.




8. Training and Awareness: It’s essential for
   en،ies to train their relevant s، about the requirements of
   the CTA and ensure ongoing awareness and understanding of
   compliance obligations. This will be a key element of a
   company’s compliance plan to protect en،ies from i،vertent
   violations.




9. Seeking Professional Advice: Given the
   complexities and legal implications of the CTA, en،ies s،uld
   consider seeking advice from legal professionals or compliance
   experts to ensure they fully understand and meet their obligations.
   This consultation s،uld be ongoing as the CTA and its regulations
   and interpretations by FinCEN evolve.




10. Deadline Awareness: Be aware of and adhere to
    all relevant deadlines for initial reporting and updates to ensure
    ongoing compliance.

This checklist provides a broad overview of the requirements
under the Federal Corporate Transparency Act. It’s important
for en،ies to t،roughly understand these requirements and seek
professional guidance to ensure full compliance. The team at
Crowley Law is very familiar with these requirements.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

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