The Corporate Transparency Act: What You Need to Know

In the past few months, several clients have approached us to ask about the new reporting requirements under the Corporate Transparency Act. The Act (commonly referred to as the CTA) introduced a new set of obligations earlier this year, and companies will start to have to figure out how to comply with these regulations in the coming months. Today, we review the basic purpose, requirements, and exemptions under the CTA; but as always, if you have specific questions about how the CTA’s language might affect you or your business, we recommend that you speak with a Boulder attorney that can walk you through any possible overlap with your individual circumstances. The Basics

The purpose of the CTA is simple: the federal government is trying to make it more difficult for individuals to create and use shell companies, which are businesses without assets that are often formed to avoid taxes or launder money. The CTA essentially creates a huge database of companies that are either formed or operating in the United States. By requiring these businesses to provide the government with basic information about their identities, the government creates a mechanism to track their functions and methods, monitoring against fraud in the process.

The new rules under the CTA were introduced on January 1, 2024; however, the government has given entities one year (until January 1, 2025) to come into compliance with the CTA’s regulations. However, if an individual or group of individuals creates a business in the year 2024, that business has only 90 days to register to file their information with the government.

The Requirements

The CTA says that any reporting company has to electronically file certain information on the Financial Crimes Enforcement Network’s website. The company must report everyone that is a “beneficial owner.” Importantly, beneficial owners fall into two categories: someone that owns or controls 25% or more of the company’s ownership interests; or someone that exercises “substantial control” over the business. While the “25%” requirement is straightforward, the “substantial control” requirement is less clear. Examples of individuals exercising substantial control over a company include members of a company’s leadership team, board members that can appoint leadership to a company, or anyone that has the authority to make significant decisions for the company.

In addition to reporting the list of beneficial owners, companies must list their identification information – i.e. their address and taxpayer identification number. The CTA then puts this information into its database so it can monitor the company over time.

There are also steps that companies must take after filing their initial information online. If there is a change in circumstances within the company, the company must update the information in the system within 30 days of the change. This would apply, for example, to companies experiencing a change in leadership or even a change in address.

For companies that must comply with the CTA and fail to do so, a court can impose financial penalties, criminal penalties, or both. If you think you might be under the purview of the CTA, it is always better to err on the side of caution instead of exposing yourself to costly penalties.

Exemptions

Not every company formed or operating in the United States needs to file with the CTA. The CTA lists 23 exemptions, including: governmental authorities, banks, credit unions, insurance companies, and accounting firms. There are also exemptions for “large operating companies” and inactive entities. The full list of exemptions is available here. Even if your business falls within an exempt category, however, it is important to look closely at the exemption as listed. Each exemption carefully defines the type of company that is free from the typical reporting requirements, and if your company does not clearly fit within the confines of the definition, you might indeed be required to report under the CTA. Asking a lawyer or financial expert whether your company fits into an exemption is never a bad idea.

The CTA’s Connection to Estate Planning

As we have discussed in the past on our blog, more and more estate planning attorneys are becoming familiar with financial issues, and more financial experts are learning about the estate planning process. The two spheres are inextricably linked, since the way you organize, manage, and monitor your financial assets will certainly affect how you create and update your estate plan. Remember, you should aim to update your estate plan either every three to five years, or whenever you experience a significant life change.

Lastly, a company that is incompliant with the CTA could face difficulties in probate, if the company’s owners are attempting to pass even a portion of the company on to a beneficiary. This, in turn, causes major headaches for those navigating the probate process, and it is always more efficient to make sure things are above board on the front end (instead of trying to clean up the mess during probate). With questions about how the CTA might affect your estate plan, whether you have started the estate planning process or not, contact a trusted attorney that can look at both your financial records and your estate plan to make sure you are on the right track.

Do You Have Questions for a Boulder Estate Planning Lawyer?

At the Braverman Law Group, we pride ourselves on staying up to date on relevant changes in financial regulations and laws. Our team of Boulder estate planning lawyers is experienced in tying any regulatory changes into our clients’ estate plans, mindful of how important it is for clients to update their estates plan every few years. For many, this process can feel daunting, but with the right team of attorneys by your side, you can move through your estate planning journey as seamlessly as possible. Our firm at the Braverman Law Group uses empathetic, knowledge-based representation to guide our clients through their legal issues, and we would be honored to do the same for you. For a free and confidential consultation with a Boulder estate planning lawyer, give our office a call today at (303) 800-1588. If you prefer, you can also fill out our online “contact us” form to have an attorney reach back out to you as soon as possible for your consultation.