Changes to Corporate Ownership: The Corporate Transparency Act

The federal government is requiring a new “beneficial ownership” information reporting requirement that will affect millions of corporate entities to be formed and previously formed. While Congress initially passed this requirement in the Corporate Transparency Act in 2021, the law will take effect on January 1, 2024. This Act will create new obligations for the smallest private companies to report beneficial ownership with the Treasury Department’s Financial Crimes Enforcement Network (FinCen).

What is the beneficial ownership requirement?

Beneficial ownership refers to identifying information about the individuals who directly or indirectly own or substantially control a company. Substantial control includes a senior officer, or individual that has authority to appoint or remove certain officers or a majority of directors, or an individual that is an important decision maker for the company.

Why even have this requirement?

The government stance is that, by having this reporting requirement, it would make it easier to identify bad actors that may hide behind or benefit from questionable gains through shell or other questionable  corporate entities.

When is this reporting required?

If a business is created or registered to do business before January 1, 2024, that company has until January 1, 2025, to file its initial beneficial ownership information report. However, a company created or registered on or after January 1, 2024 will have 90 days to file its initial beneficial ownership information report.

Are there exemptions to this requirement?

There are currently 23 types of entities that are exempt from this reporting requirement. These entities include nonprofits, large operating companies, and publicly traded companies that meet specified requirements.  Examples are securities brokers, insurance companies, accounting firms, credit unions, banks, tax-exempt entities, and public utility companies.

How do I prepare for this?

All companies should determine, prior to year-end, if they are exempt from this Act.  If not, each company should identify individuals who “substantially control” the reporting company or own or control at least 25% of the ownership interests in the reporting company or have “any other form of substantial control” over the reporting company.

If there are any companies that  are inactive or not needed that are not exempt from this Act, one may consider dissolving those entities so that one does not have to do the required reporting.

 What does this all mean?

The Act may continue to evolve  but one thing is for certain: requiring companies reporting beneficial ownership is here to stay.  As in George Orwell’s 1984, “Big Brother”  will be part of our corporate existence even more with this reporting requirement.  In order to understand this Act and the upcoming requirements, having a business attorney review your corporate needs is paramount. Note that accountants and lawyers (unless the attorney is the general counsel) do not qualify as beneficial owners but that also depends upon the work that is performed.

We are here to assist you in this process so do not hesitate to reach us. For thirty plus years, Oppenheim Law has served local, national, and international clientele particularly in the areas of real estate and business law. Should you have any questions related to a real estate or business matter, feel free to call us  at  954-384-6114 or contact our firm directly at  contactus@oppenheimlaw.com.

From the trenches,

Roy Oppenheim