The Corporate Transparency Act Is Coming
Federal law is set to change, and the changes will put new burdens on privately owned companies. This is rare, as usually federal regulations monitor and regulate public companies.
Disclosures of Owners and Those in Control
The new law, called the Corporate Transparency Act, will require private companies to disclose to the government the identities of any beneficial owners of the company.
Beneficial owners are defined as any person or company that owns 25% or more of the company, or any person or company that serves as an agent or a nominee of the company. The definition also includes anybody who exercises substantial control over the company, regardless of their percentage of ownership.
Companies will have to disclose to the government information about these individuals to the government, including names, birthdates, and addresses. An identifying number from an ID document, such as a driver’s license or passport, will also have to be provided. It will cover almost every kind of company, but it is not yet clear whether partnerships will be included.
Time to Comply
The time frame to comply (to provide the disclosures) will vary, depending on whether the company was formed before the law comes into effect in 2022, or whether the company was formed afterwards. Pre-existing companies will have up to 2 years to comply with the law. For companies formed after the Act becomes law, the disclosures must occur at the time of the company’s formation.
All companies will have to report within one year of any change in the beneficial ownership of the company.
Who Has Access?
The information provided will be accessible to the government, law enforcement, and will be used for national security reasons. In some cases, banks that suspect money laundering may be able to access the records. The information will not be available to the general public.
The guiding reason for the law is to identify and stop money laundering. The law will curtail the practice of using shell or shadow companies to hold corporate assets that is possible now, as most state laws don’t require disclosure of who has ownership in privately held companies.
Penalties and Exemptions
Penalties for the failure to comply can be significant; jail time for owners or operators can be imposed, if the law is ignored, or if false information is provided.
Companies do not have to comply with the law, if they have over 20 employees, and if they have gross receipts of $5 million or more, as evidenced by federal tax returns. Other heavily regulated companies, like insurance companies, banks,. Investment advisors, nonprofit organizations, or credit unions and banks, are also exempt.
The Secretary of the Treasury has not yet put out full regulations on the new law, so many details are still being worked out. The regulations likely will include who has “substantial control” or a company, which would trigger the reporting requirements.
Call the West Palm Beach business litigation lawyers at Pike & Lustig for help today keeping in compliance with government rules and regulations.