Corporate Transparency Act is coming to the USA

Beneficial ownership disclosure to be law

By: Ramsey Taylor, ramsey@taylor.legal, Partner at Taylor Legal NYC specializing in Financing for Startups, and Guest Blogger at Suitless

It has been over a month since I dropped a blog – and a lot has happened in that time. There has been chaos and uncertainty, President Biden has taken office and new strains of COVID-19 are emerging. On a good note, regardless of where you are on the political spectrum, Lady Gaga’s National Anthem rendition during the inauguration was amazing! (And who said everything was downhill for her after Paparazzi?) Anyway – what woke me up from my cold winter slumber here in NYC was a little noticed provision of the 2021 National Defense Authorization Act entitled the “Corporate Transparency Act” (the “CTA” so I don’t have to keep typing it out!). 

What’s in the Corporate Transparency Act?

To put it simply, the CTA requires the US Treasury Department to create a national database listing the beneficial ownership of most businesses in the United States. If you are a business that does not need to be listed, you will need to file with the US Treasury an “affirmative statement” that you are exempt.

What does this mean for you? It means that if you set up a legal entity in the United States you may have to report your personally identifiable information to the United States government. 

What needs to be disclosed?

Congress just dropped a huge bomb on us (at least on us lawyers 😉 ). Clients often ask me, especially those abroad, if they will need to disclose their list of shareholders and owners. To date, I have said no. We do need to check foreign owners against the US Treasury lists of “Specially Designated Nationals and Blocked Persons” as well as the Office of Foreign Assets Control “Sanctions List”. These are what I refer to as “shady sorts” list. (By the way – looking for a business idea? Come up with a way to easily help people search these lists – the current database seems clunky and very outdated).

Companies – including LLCs and corporations – will need to disclose information on beneficial owners who directly or indirectly:

  1. Exercise substantial control over an entity; or
  2. Own more than 25% of an entity.

How will the Corporate Transparency Act be enforced?

There are a lot of questions about the CTA and how it will be implemented. 

The US Treasury Department has one year to enact regulations and create the database. So – at this moment – there is no disclosure requirement. In about a year – there will be a disclosure requirement. What we know so far is:

  •  If your legal entity is in existence before the US Treasury regulations go into effect, it will have two years to disclose information about its beneficial owners.
  •  If the legal entity is formed after the regulations are implemented, the new entity will need to disclose information on its beneficial owners at the time of formation.

What can you do?

My advice is – for the moment – to sit tight and wait for the regulations. If, however, you are thinking of establishing an entity in the United States – do so in the next year. It will then be in existence prior to the implementation of the CTA regulations. This will buy an additional two years before the entity needs to disclose personal information. Hopefully, over that two year period developments will occur/changes to the law and/or clarifications to the regulations will take place that will limit what information needs to be disclosed.

I am still looking into the following issues and will update in the future:

  1. How to become exempt from the requirements;
  2. What is a “beneficial owner”; 
  3. What information will need to be disclosed; 
  4. Who will get access to the information in the Treasury database; and,
  5. How do the new regulations interact with lawyer ethical requirements, such as the duty to maintain confidentiality? 

Stay warm if you are in the Northern hemisphere and stay safe regardless of where you are!

Reach out to Ramsey Taylor at ramsey@taylor.legal with any questions about the Corporate Transparency Act, or to yours truly at Suitless info@getsuitless.com for any questions regarding establishment of an entity in the USA.

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