Navigating the Corporate Transparency Act: What Business and Family Office Owners Need to Know

The imminent enforcement of the Corporate Transparency Act (CTA) is a critical turning point that demands immediate attention from business and family office owners to avoid severe penalties. Both business and family office owners must understand that it’s their responsibility to ensure they follow and meet all reporting requirements for their entities. This article will review some key points within the CTA, and owners are advised to review the CTA to understand its requirements as they pertain to their specific situation, including the implications for trusts commonly used in family offices.

The CTA Sets a New Standard for Business and Family Office Ownership Disclosure

Under the CTA, the Beneficial Ownership Information (BOI) Reporting requirements will be effective January 1, 2024. This reporting requirement mandates most U.S. corporate entities, foreign entities operating in the U.S., and relevant family office structures to report ownership information to the Financial Crimes Enforcement Network (FinCEN). The CTA’s enactment establishes unprecedented protocols, compelling reporting entities to disclose the identities of their beneficial owners, including those in trusts and family office arrangements.

Key Terms and Definitions to Know from the CTA:

• A “Reporting Company” includes many family office structures, corporations, LLCs, or similar entities created by a filing with a state secretary or similar office, encompassing entities formed under foreign laws but operating in the U.S.
• A “Beneficial Owner” is defined as someone who exercises substantial control over a company or holds at least 25% of the ownership interest, including top officers and, in the context of family offices, trustees, and beneficiaries with substantial control or ownership stakes.
• A “Company Applicant” is the individual(s) responsible for the filing to form or register the company, including family office entities.
• Required reporting information includes legal and trade names, addresses, jurisdiction of formation or registration, and taxpayer identification number for the company.
• For Beneficial Owners and Company Applicants: full legal names, birthdates, residential and, in some cases, business addresses, identification numbers, and images of their identification documents must be reported.
• Exemptions: While some companies are exempt, the broad scope of the CTA means that most entities will need to engage in substantial reporting. Certain tax-exempt entities and charitable trusts will be exempt. A family office might qualify for an exemption if it is a nonprofit, political, charitable, or split-interest organization. To determine if your family office is exempt, please review the CTA guidelines

Implications for Family Offices and Trusts:

Family offices need to assess their structures under the CTA carefully. This includes identifying beneficial owners within their trusts and entities. The rule clarifies which entities will be required to file a BOI report, the information that must be reported, and when such reports are due. Family offices need to recognize that many of their investment entities and structures, such as trusts, corporations, or LLCs, may not be eligible for exemptions and, as a result, will necessitate detailed compliance reporting under the CTA.

Key Information Releases to Watch For

All reporting companies will submit their information electronically through the Beneficial Ownership Secure System (BOSS). The system is still in development and has not been launched as of the date of this article. You can expect detailed guidelines from FinCEN that will direct your next steps once it has.

Concrete Steps Towards Meeting CTA Requirements for Businesses and Family Offices:

• Identify reporting requirements: Determine if your business or family office is classified as a “Reporting Company.”
• Review Current Ownership Structures: Examine your company’s and family office’s ownership details, including trust arrangements and updating records to reflect current status.
• Understand the Definition of ‘Beneficial Owner’: Familiarize yourself with the legal criteria for beneficial owners to ensure all necessary information is reported. This includes individuals in control positions within family offices and trusts.
• Prepare for BOSS Registration: Anticipate the requirements of the BOSS system and gather all pertinent information beforehand.
• Monitor Legislative Updates: Regularly check for new information from FinCEN and adjust your compliance strategies accordingly.

Consequences of Ignoring New Compliance Requirements:

Reporting requirements do not start until January 1, 2024, and FinCEN will not accept any reports until then. However, preparing your business for this reporting requirement is essential. The enforcement of the CTA includes significant penalties, including daily fines and possible imprisonment for non-compliance. The same penalties apply to both business and family office owners.

Key timeframes:

• Reporting companies created or registered to do business before January 1, 2024, will have additional time — until January 1, 2025 — to file their initial BOI reports.
• Reporting companies created or registered on or after January 1, 2024, will have 30 days after receiving notice of their company’s creation or registration to file their initial BOI reports.

How Compliance Strengthens Your Business and Family Office:

While the CTA requirements may initially seem complex, our firm is here to provide guidance and help direct you to the necessary third-party resources to complete your registration independently and monitor filing changes.

Additional Resources for Information: Small Entity Compliance Guide