The Corporate Transparency Act: What You Need to Know

The U.S. Corporate Transparency Act may impact your company

If your company has more than 20 full-time employees in the United States and more than $5 million in annual gross sales in that country, there is a low probability that the Corporate Transparency Act will have any impact on your company.

There is a good chance that this client alert message does not need to be sent out at this time.

However, the new United States Corporate Transparency Act may have an impact on your company if you run a shell corporation or if your workforce consists of fewer than twenty people.

Outside of the United States, privately held businesses and other types of legal entities almost never have an obligation to disclose their shareholders or other stakeholders.

The U.S. Congress decided to pass the Corporate Transparency Act because this opaque system was being used in more and more wrong ways.

The requirement imposed by the Corporate Transparency Act on U.S.-based corporations to disclose the identities of their ultimate beneficial owners to the Financial Crimes Enforcement Network of the United States Department of the Treasury is an essential component of the legislation.

In spite of the fact that the law mandates the dissemination of a great deal of information, the vast majority of American businesses that conduct the majority of their operations within the United States will not be required to comply with the law.

In this client briefing, we will discuss whether or not the Corporate Transparency Act has an impact on your company and, if it does, what steps you need to take in order to comply with its requirements.

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Which types of companies are going to have to make adjustments as a result of the new regulation?

This disclosure rule is applicable to all different kinds of legal entities in the United States, including corporations, limited liability companies, and limited partnerships, among others.

If a foreign legal entity is allowed to do business in a state in the United States, it must follow the laws of that state.

Which particulars do you feel it necessary to discuss?

Companies that are required to comply with the new legislation are referred to as “reporting companies,” and they are required to provide the United States Department of Treasury with information regarding each “beneficial owner” of the reporting company.

The term “beneficial owner” is defined in such a way that it encompasses not only the equity holders of the company but also the top management of the company, even if they do not have any equity in the company. This is because the term “beneficial owner” includes both equity holders and top management.

A beneficial owner is a person who owns 25% or more of the equity interests of a reporting entity or who has a significant amount of control, management, or direction over the reporting company.

Beneficial owners are required to disclose their holdings in certain situations.

Aside from the Chief Executive Officer and Chief Financial Officer, other members of the board of directors who may be considered important include the President, Vice Presidents, Treasurer, Managing Member (in a member-managed LLC), General Partner, and any other members who may be considered relevant (if a limited partnership).

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Do you know of any scenarios in which you wouldn’t be required to share information with another person?

The primary “ifs” and “buts” are as follows: Does the company have more than 20 full-time employees in the United States? Does the company have a physical presence in the United States? Does the company generate more than $5 million in annual gross sales in the United States? The $5 million threshold is calculated for all legal entities as a whole, whereas the 20-worker threshold is calculated individually for each legal entity.

Because of this exemption, businesses that have operations in the United States are exempt from the requirement that they disclose the information.

It is possible that the new law will require even the smallest U.S. branches of companies that have their headquarters in other countries to comply with its regulations.

Is it available to every person?

Nobody else can access the information that was passed along to the United States Treasury. Because of the new law, the United States Department of the Treasury must take steps to keep the information it collects secret.

How many days must this information be made available to the general public?

On January 1, 2024, the new Corporate Transparency Act will be officially codified into law. If a business doesn’t fit into any of the exemption categories, it has until January 1, 2025 to send in its disclosure statement. If it doesn’t, it has until January 1, 2025.


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