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The new year begins with plenty of optimism for small business owners, family held and privately held companies.  Most economic prognosticators anticipate fairly robust growth as the US and other economies emerge from pandemic enforced shutdowns.  That said, here is one development that all owners of small companies should have on their “to do” list this year – the Corporate Transparency Act (CTA).  We provide an overview below.  If you have any questions about the CTA and how it might affect your company, please contact Mark D. Belongia, Chair of Johnson & Bell’s Commercial Transactions group.  Mark regularly works with small businesses, family and privately held companies, and corporations on strategic planning, finance issues, corporate and employment issues, and other areas.

The Corporate Transparency Act

Earlier this year, Congress passed the Corporate Transparency Act (CTA), which will require certain small businesses to identify and disclose information about their owners. Though the purpose of the law is to help stop money laundering, CTA will have the effect of adding new burdens and costs on new and existing small businesses. It is expected to take effect in 2022.

Under the CTA, each corporation or limited liability company is required to file a report with the Financial Crimes Enforcement Network (FinCEN) containing a list of the beneficial owners of that corporation or limited liability company. For each beneficial owner, the applicant will have to disclose the following information: full legal name; date of birth; current residential or business street address; and a unique identifying number from a non-expired passport issued by the United States, a non-expired personal identification card, or a non-expired driver’s license issued by a State. The CTA defines a “beneficial owner” as any “person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise: exercises substantial control over a corporation or limited liability company; owns 25 percent or more of the equity interests of a corporation or limited liability company; or receives substantial economic benefits from the assets of a corporation or limited liability company.

The CTA exempts several businesses from its disclosure requirements. Those are mostly larger companies and companies in heavily regulated industries, including: publicly traded companies; financial institutions such as banks and credit unions, and investment advisors; insurance companies and public accounting firms; public utilities; non-profit organizations; and any business that employs more than 20 full-time employees in the U.S., has revenues in excess of $5 million and has a physical presence in the U.S.

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