What You Need to Know About the Corporate Transparency Act

In or around 2020 and 2021, Congress began to realize how easy it is to hide behind a corporate entity. While companies owning other companies owning subsidiaries provide for a complex web of owners that can provide anonymity for those business’ owners, Congress felt that that same anonymity may pose a national security risk.

What is the CTA?

So, Congress passed what is known as the Corporate Transparency Act or CTA. On the surface, the CTA is a reporting law, requiring businesses to fill out a relatively easy form.

The CTA requires that business owners disclose, via the form, their names and trade or DBA names, addresses, and other identifying information, such as tax ID numbers.

But, most importantly, the CTA also requires disclosure of all beneficial owners of the company. The name, dates of birth, addresses and ID or passport information, must be disclosed for all beneficial owners of the company.

If you own more than 25% of a company or if you exercise what is called substantial control of the company, you are a beneficial owner and your information must be disclosed under the CTA.

What is Substantial Control?

That means that even if you don’t have an actual ownership interest in the company, if you have substantial control over it, you must be disclosed by the company under the CTA. Substantial control means:

• You are a senior officer, or else you hold a position that would be considered senior—think President, CEO, CFO, or even a general counsel
• You have the ability to remove or replace any senior officer in the company
• You control, or have authority for, important business matters of the company

As you can see this is all quite vague. Basically if you can or do make important decisions for the company, you probably exercise substantial control, and thus, must be disclosed in the CTA disclosure.

Ownership of 25% or More

Note that even if you exercise no control over the company at all, if you own more than 25% of the company, you must be disclosed as well. Ownership includes owning shares or capital in the company. This applies even if you own more than 25% through an intermediary—for example, if your shares are in a trust, or if an appointee or agent controls or owns the shares on your behalf.

Noncompliance

Penalties for noncompliance can be severe. You can be fined $500 for every day the noncompliance continues, and in more serious, criminal cases, you can even face imprisonment.

Exemptions

Not every company must comply with the CTA. Any company that is publicly traded does not, nor do companies with 20 or more full time employees, or companies that make more than $5 million in revenue yearly. Some specialized companies like accountants, insurance companies, utility companies, or nonprofits, are also exempt.

Questions about government compliance? Stay out of trouble. Let the West Palm Beach business litigation lawyers at Pike & Lustig help answer your corporate or business law questions.

Source:

floridabar.org/the-florida-bar-news/corporate-transparency-act-what-florida-lawyers-need-to-know-before-the-deadline/