CURRENT MONTH (December 2020)
Corporate Transparency Act—Disclosure of Beneficial Owners Required
By Rudy Aguilar and Douglas Charnas, McGlinchey Stafford PLLC
On New Year’s day, the Senate voted and overrode President Trump’s veto of the National Defense Authorization Act (NDAA). The House had previously voted, on Monday, December 29, 2020, to override the veto. Now, businesses and incorporators must deal with the Corporate Transparency Act (CTA), which is included in the NDDA and designed to combat illegal activities conducted through anonymous shell companies by requiring the reporting of the identity of the “beneficial owners” of such companies, subject to certain exceptions. One such exception covers existing businesses with an operating presence at a physical office in the United States, at least 20 full-time employees in the United States, and at least $5 million reported in gross revenue the prior year on its U.S. federal tax return. Certain other types of entities also are exempt from the CTA reporting requirements.
The CTA requires disclosing the “beneficial owners” to the Financial Crime Enforcement Network (FinCEN) at the time a company is formed. Companies also will be required to disclose beneficial ownership and changes in beneficial owners in annual filings. The information reported to FinCEN will not be available to the public. Any unauthorized disclosures or misuse of this confidential information will result in severe penalties. An entity may consent to the disclosure of this confidential information to financial institutions so they can comply with their “Know-Your-Customer” regulatory requirements.
The specifics for reporting requirements under the CTA will be determined by Treasury regulations, to be promulgated no later than one year after enactment of the CTA. The CTA reporting requirements will take effect on the effective date of those Treasury regulations.