Corporate Transparency Act Will Impose New Reporting Requirements On Certain Businesses

 
Bowles Rice Banking and Financial Services e-Alert
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Corporate Transparency Act Will Impose New
Reporting Requirements on Certain Businesses

In December 2020, Congress passed the National Defense Authorization Act for Fiscal Year 2021 ("Defense Act"), which included significant adjustments to federal systems that monitor for financial crimes. Although vetoed by President Trump, the Senate overrode the President's veto on January 1, 2021.

The Defense Act included the Corporate Transparency Act ("CTA"), which now requires a privately held "reporting company" to disclose each "beneficial owner" to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). The CTA reporting requirements will be implemented after the Treasury Department adopts new rules and regulations, projected for no later than January 1, 2022.

WHAT IS A REPORTING COMPANY?
A "reporting company" is defined as a corporation, limited liability company or other similar entity that comes into existence by filing in any state, or one that is formed in a foreign jurisdiction then registered to do business in the United States.

Importantly, there are several exemptions to the reporting requirements, including but not limited to companies that are already subject to oversight or regulation by the federal government and companies that employ more than twenty (20) people on a full time basis, file a tax return reporting gross receipts of more than $5 million and have a physical presence in the United States.

WHAT IS A BENEFICIAL OWNER?
A "beneficial owner" is defined as a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise: (i) exercises substantial control over an entity; or (ii) owns or controls at least 25% of the ownership interests in the entity.

Entities formed after the new regulations are released will report when formed as part of state formation procedures. Entities formed prior to enactment will have time to file their initial reports at a later date. Penalties for the failure to report include civil fines and criminal fines and imprisonment.

The impact of the CTA appears broad and multi-faceted. It will tighten controls aimed at financial crimes that occur through the misuse of legal entities. On the other hand, the sweeping nature of the CTA will impose new burdens for many traditional business entities if the company does not fall within one of the exemptions. Once the Treasury Department issues the regulations that will underpin reporting, it is advisable to consult with your legal counsel to determine whether your company falls within one of the exemptions.


For more information
Bowles Rice will monitor the issuance of the CTA's additional rules and regulations when they are adopted by the Treasury Department, and provide further guidance at that time. If you have any questions, contact a member of the firm's Corporate Governance and Compliance Team listed below.

Ellen Maxwell-Hoffman
contact by email
304.347.1186

James V. Kelsh
contact by email
304.347.1135

John F. Nobbs
contact by email
724.514.8945


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For more information, visit our website:
bowlesrice.com

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