Corporate Transparency Act
Author: Alisa Best, 3L Liberty University School of Law
Earlier this year, Congress passed the National Defense Authorization Act for fiscal year 2021. Included in the National Defense Authorization Act, is the Corporate Transparency Act.
In passing this act Congress reported that it found that each year there are 2 million corporations and limited liability companies being formed under the United States laws. Criminals have exploited formation procedures to conceal their identities and use these corporations and limited liability companies to commit various crimes.
What is the Corporate Transparency Act?
The Corporate Transparency Act (the Act) was introduced in the House of Representatives in May 2019 by New York Representative Carolyn Maloney and requires that certain new and existing corporations and limited liability companies to disclose information about their beneficial owners.
In the application to form a corporation or limited liability company, each person must provide to the Financial Crimes Enforcement Network (FinCEN) the full legal name, current residential or business street address, a unique identifying number from a non-expired passport, and a legible and credible copy of the pages of a non-expired passport bearing a photograph, date of birth, and unique identifying information for each beneficial owner.
In updating corporation and limited liability company information, each update must include a written certification by a person residing in the State forming the entity that the applicant, corporation, or limited liability company has obtained for each beneficial owner, a current residential or business street address and a legible and credible copy of the pages of a non-expired passport bearing a photograph, date of birth, and unique identifying information for the person; has verified the full legal name, address, and identity of each such person; will provide the information referenced above and the proof of verification upon request of FinCEN; and will retain the information and proof of verification under this paragraph until the end of the 5-year period beginning on the date that the corporation or limited liability company terminates under the laws of the State.
The purpose of the Act is to ensure people who are forming corporations and limited liability companies in the United States disclose the beneficial owners of the corporation or limited liability company and to prevent wrongdoers from exploiting United States corporations and limited liability companies for criminal gain. Additionally, this Act will assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and limited liability companies.
Certain New and Existing Corporations and Limited Liability Companies
While the Act provides that new and existing entities are required to disclose their beneficial owners, it provides an exemption from disclosure for specific entities. For the purposes of this blog post, the complete list of exempt entities will not be included, thus if you are concerned about whether you fit within a category of an exempt entity, it is imperative to consult an attorney to reference the Act. However, some of the exempt entities are companies that already provide information to a relevant government agency; church, charity, nonprofit entity, or other organizations described in Internal Revenue Code sections 501501(c), 527, or 4947(a)(1); insurance company; public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act; investment company or investment adviser; credit unions.
Who is a Beneficial Owner?
The Act defines a beneficial owner as an individual who exercises substantial control over a corporation or limited liability company; owns 25% or more of the interest in a corporation or limited liability company; or receives substantial benefits from the assets of a corporation or limited liability company.
Penalties for non-disclosure
Violations of the Act include but are not limited to knowingly providing, or attempting to provide, false or fraudulent beneficial ownership information; willingly failing to provide complete or updated information; knowingly disclosing the existence. A person who violates the Act will be liable for a civil penalty of up to $10,000 and/or imprisoned for not more than 3 years.
What Does This Mean for You?
Reporting will not begin until January 2022, thus what this means for existing corporations and limited liability companies is that they will have about 2 years to report in accordance with the Act. And as for newly formed corporations and limited liability companies, they will be required to report when they are formed in accordance with the Act.
To access the full Act follow this link: https://www.congress.gov/bill/116th-congress/house-bill/2513/text
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