The Corporate Transparency Act requires the U.S. Treasury Department's Financial Crimes Enforcement Network - FinCEN - to adopt regulations before the end of the year to implement the law. FinCEN has not yet released those regulations. But, there are five things your business can do now to prepare for this new law.
1. Understand What the CTA Requires
The CTA requires almost every U.S. business to register the names and identifying information of its beneficial owners. The CTA created only a few statutory exemptions from this requirement.
Every U.S. business should familiarize itself with the CTA and determine whether it fits into one of those exemptions. The FinCEN Report Company has a free widget on its website that can help businesses determine whether they are likely to fall into an exempt category.
2. Do Your Corporate Housekeeping
The CTA is going to require U.S. companies to file a report that lists each beneficial owner of the company. The definition of "beneficial owner" will be clarified in the upcoming regulations.
Each company will need to be calculate who its owners are and how they maintain their control over the company. If corporate documents are incomplete, or haven't been finalized, it might be difficult (or even impossible) to determine who a company's beneficial owners are. That will make compliance difficult, time-consuming and potentially expensive.
To avoid this problem, each company should review its corporate documents. Corporations should update their articles of incorporation, bylaws, minutes of the board of directors, and any shareholders agreement. Limited liability companies should review their operating agreements and make sure they have been signed by each member. Partnerships should update their partnership agreements and make sure they are fully-signed. In each case, the company should consult with its attorney to review its CTA status. The attorney will need to ensure that they can determine beneficial ownership, however the regulations might be resolved.
#3 Understand Your Exemption Status
The CTA created twenty-four categories of exemption. Exempt companies will not need to file a beneficial ownership report. And, determining whether your company is exempt may be difficult, depending on the facts.
The statute exempts publicly traded companies, banks, insurance companies, licensed broker/dealers, licensed investment advisors, non-profit companies under IRS Section 501(c) and wholly owned subsidiaries of exempt companies will be exempt.
As part of your corporate housekeeping efforts, you should ask your attorney whether your company is likely to be exempt. Before the law is fully implemented at the end of 2021 there may be things that you can do to improve your exemption status.
#4 Manage Your Exemption Status In Future Transactions
Based on your review of your exemption status, you should know what factors matter to your business being exempt or not exempt. Because your status can change, you will want to manage those factors in any transaction you have before the end of the year.
If you plan to issue stock, transfer stock from one investor to another, merge with another company, or acquire the stock of another company, for instance, you should take your exemption status into account. Changes in ownership may affect whether your company is exempt.
Before you commit to a major transaction, you should review how that transaction might affect your exemption status.
#5 Check Back Before Year-End
The CTA requires FinCEN to publish final regulations before December 31, 2021. As a result, FinCEN must first publish its regulations in draft form and allow the public to comment. Because of those deadlines, we expect FinCEN to publish a draft of the regulations soon.
As a result, the Fincen Report Company will let you know when the draft regulations are available. We will publish comments on the draft regulations and will let you know how the major players in this space are reacting as the laws are made. Check back with us to stay abreast of all the developments as they take place.
About The Author
Jonathan Wilson is the co-founder of FinCEN Report Company with 31 years of experience in corporate, M&A and securities matters. He is the author of The Corporate Transparency Act Compliance Guide (to be published by Lexis Nexis in the summer of 2023) and the Lexis Practical Guidance Practice Note on the Corporate Transparency Act.