The U.S. Corporate Transparency Act (CTA) Regulations: An Overview
Businesses have long been able to operate in the U.S. without needing to disclose vital information on their ownership, management, and operation. With the implementation of the Final Rule of The Corporate Transparency Act Regulations, that freedom will soon be a thing of the past. The Final Rule is a major update to U.S. anti-money laundering legislation, and compliance will be obligatory for both existing and new companies. Breaches may result in severe penalties.
The aims of The Corporate Transparency Act Regulations are laudable. They aim to prevent corruption in business, money laundering, and terrorist financing. As criminals become ever more sophisticated in the methods they use to perpetrate financial crime and avoid scrutiny, regulators and institutions are keen to introduce preventative policies and strategies. Yet, in doing so, they will restrict the previous freedom enjoyed by entities large and small across the U.S. and force them to disclose private information on their control structures.
The CTA Regulations will bring the U.S. into line with the other G20 countries. Corporate entities must henceforth disclose their true ownership structures and personal identifying information to the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). This increased emphasis on corporate transparency aims to support the efforts of law enforcement to reduce the company anonymity that enables illegal activity such as serious tax and securities fraud. Whilst this is certainly a boon for law enforcement, the increased filing and paperwork will cause difficulties for legal entities.
The Corporate Transparency Act Regulations requirements are unprecedented in U.S. law and an essential federalization of corporate law that fails to differentiate between good and bad actors, so the majority of beneficial owners or entities incorporated or that conduct business in the U.S. will be captured by the new requirements. Given the significant impact of the new reporting system on businesses across the U.S., planning and preparation for compliance with the requirements of the CTA should begin now.
Here, we summarize what your company should do and how specialist legal entity and subsidiary management software can help you to ensure compliance.
Preparing Your Company for Compliance: Everything You Need to Know
The Corporate Transparency Act Regulations will require millions of corporations and LLCs (limited liability companies) to use disclosure forms to inform the federal government of their beneficial ownership details. This means that legal entities must act swiftly to implement procedures that will facilitate compliance with the Regulations.
All privately held corporations, limited partnerships, LLCs, and LLPs that have been formed in the U.S. or that are registered to do business in the U.S. must report any controlling ownership or individual ownership of over 25 % equity interest. As such, the absolute majority of corporate entities registered in the U.S. will be obliged to comply with the disclosure requirements.
The CTA requires “reporting companies” to disclose the information about their beneficial ownership” to FinCEN, this being the legal term referring to individuals who benefit in some way from a business or company through substantial control or interest of some kind such as, for example, voting rights or a controlling stake of at least 25%. The complexity resulting from varied forms of ownership, such as trusts or corporate partnerships, means that entity management software provides vital assistance in providing accurate and consistent information.
This new emphasis on beneficial ownership is an important differentiation from legal ownership. The change emphasizes the importance of accountability in business and indicates a growing awareness of how anonymity in business is linked to money laundering, fraud, and human rights abuses. The corporate transparency movement reveals a significant change in how the U.S. government will tackle corruption.
Penalties for Non-Compliance
Corporate America has experienced a difficult couple of years, with the global pandemic, civil unrest, and the resulting impact on the national economy. It is understandable that businesses might be perturbed by the new requirements. Yet it is crucial for entities to ensure that they’re fully up to speed with the new corporate transparency requirements. At Athennian, we work hard to ensure we provide all our clients with the most up-to-date information and compliance requirements. Companies must put firm processes in place to ensure transparency with regard to their company information, incorporation, and governance details.
The expansive definition of a “reporting company” in the CTA does provide for some exemptions. These exemptions include tax-exempt and non-profit organizations and those that have tangible operations, such as companies employing over 20 workers in the U.S.
At the other end of the spectrum are entities that use anonymity for legal purposes such as acquisitions, bankruptcy protection, and privacy and wealth structuring arrangements such as special purpose vehicles (SPVs) and other similarly structured organizations. They will find that they are disproportionately impacted.
Penalties are harsh indeed, with failures of compliance attracting fines of up to $10,000 or up to three years’ jail time. Preparation is vital, as businesses will feel the official impact of the CTA right from the start of 2023.
How Can Athennian Help? Your Partner for CTA Reporting Compliance
The CTA and the Final Rule present a clear opportunity and challenge to entities across the U.S. Companies can ensure corporate transparency through a focus on improved internal governance procedures. Systems that improve workflow, documentation automation, tax and filing clarity, as well as enhanced organizational visibility can all contribute to achieving this.
With our state-of-the-art entity management software, this is precisely what Athennian excels at with. Our single unified interface provides numerous benefits. A few examples include the ability to communicate with clients, the development of policies and procedures to ensure the satisfaction of all legal reporting requirements within required timeframes, and a massive reduction in human error.
Reporting compliance is stressful and time-consuming. Yet by using innovative entity-management software, businesses can reduce stress and missed deadlines. By guaranteeing that you will always remain up-to-date with all entity governance and reporting obligations through a centralized, automated process, Athennian’s entity management software can become your vital silent partner.