Although a person might not have a management position or even a job at a company, they can still receive some benefit from its decisions and operations. This reality makes it difficult for the public to hold private-sector actors responsible for their decisions. Without the ability to prosecute misreporting, criminal activities will only increase.
Financial and tax-related crimes can be difficult to trace. There are key disclosures that must be made to ensure all stakeholders are held responsible for their relationship with an organization. This setup means legal entities have specific financial reporting requirements that they have to follow.
Compliance with legislation such as the Corporate Transparency Act (CTA) requires a good understanding of beneficial ownership.
What Is Beneficial Ownership?
The beneficial owner is an individual who has some form of control over a company, whether it be through investment, management, or some form of decision-making. U.S. government regulation defines beneficial ownership as a person with at least a 25% share of a company.
Beneficial ownership might be used in legitimate cases where those associated with entities may have good reason to remain anonymous. Those working in securities, property management, and corporate governance may want to operate without disclosing personal data.
Securities
Public traders and professional financial brokers are experienced individuals who work with equity and debt to secure financial payments. Securities professionals may not wish to disclose their association with specific assets for privacy reasons. This setup is seen by the U.S. government as a possible legitimate use case for a beneficial owner.
Properties
Property management requires legal owners to have their information registered in a public database. While this is essential for the industry, some real-estate workers or others in the field may not want their information disclosed. In such cases, they can remain anonymous and file as beneficial owners.
Governance
There are some situations in which corporate executives, managers, or other higher-ups in the organization may not want to be disclosed in legal records. This desire is generally because of some nefarious intention like tax evasion or financial fraud.
However, there may be some cases in which registering as a beneficial owner would make sense.
What Is the Corporate Transparency Act?
The Corporate Transparency Act was passed in 2021 and took effect in 2022. It’s overseen by the U.S. Financial Crimes Enforcement Network (FinCEN), a branch of the United States Department of the Treasury.
FinCEN’s stated goal in introducing the CTA is to obtain a clear picture of illicit activities by collecting personal data associated with beneficial ownership. Designed to combat corruption, fraud, and other forms of misreporting, the CTA provides a framework for shaping policy around corporate financial responsibility.
By reducing corruption and putting a light on where money flows are going, the CTA gives governments a powerful tool for enforcing fines and other penalties on offending companies.
Why Is Beneficial Ownership Important to the CTA?
With the passage of the CTA, all businesses are required to provide records about their beneficial owners and verify any associated information.
Mandatory collection of operational data provides a means for FinCEN to determine who is the beneficial owner of a company or organization and take steps to reinforce taxation, reporting, and other control measures.
Tracking beneficial owners is an important part of the CTA because it enforces reporting requirements and provides an actionable point of leverage for FinCEN to use when criminal activity occurs. By looking at numerous data points and determining who has real control over an organization, financial crimes can be more easily prosecuted.
For many organizations, entity management software offers a means to stay up to date with important reporting requirements without spending too much time and effort managing people and data.
Protect Your Legal Entity with Athennian
Don’t be caught unaware by bad data management and financial reporting processes. The consequences are real. Legal entities need to be more careful than ever before when reporting on beneficial ownership and other important requirements of the CTA.
Athennian’s entity and subsidiary management software gives you all you need for tracking and reporting on legal, financial, and tax filings.
At Athennian, we’re rethinking how entity management is done. Our cloud-based data management services make corporate compliance simple. Take advantage of our automated services and support capabilities.
If you need centralized control over your entities, Athennian’s entity management platform is here to protect your most vital assets.
Athennian has worked with partners across multiple industries to streamline day-to-day workflows and improve efficiencies. We’ll dedicate ourselves to becoming a core part of your team so you can focus on the goals that matter most to you.
The Athennian platform is used by lawyers, paralegals, corporate secretaries, and IT professionals to prepare for market changes and maintain compliance with the law.
Find out for yourself why Athennian is the first choice for cloud-based entity management. Request a customized demo with a business entity management expert today!
Learn More about the Corporate Transparency Act
This webinar, hosted by Athennian CEO Adrian Camara and Customer Success Manager Charlé West, featuring guest speaker Michael Kline, Partner, and Assistant General Counsel at Fox Rothschild LLP, will provide a high-level overview of the new U.S. Corporate Transparency Act. Learn what FINCEN's Beneficial Ownership regime means for legal teams and how best to approach these upcoming challenges. Determine the risks and penalties for non-compliance, and unlock tech best practices to stay abreast of the new changes. Watch now.
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