Navigating the Corporate Transparency Act
What you need to know as of June 2024
To help combat financial crimes, the Corporate Transparency Act (CTA) requires certain businesses formed, or qualified to do business, in the U.S. to submit a report that discloses information about the reporting company, certain owners and others who have “substantial control” over the reporting company to a confidential database maintained by the Financial Crimes Enforcement Network (FinCEN).
Far in advance of when the requirements of the CTA were implemented in January 2024, Troutman Pepper contacted clients to ensure they were aware of the necessary review of CTA applicability, its potential impact on their compliance function, and the need to obtain relevant information from affiliates for any required reporting.
This section of the report is sponsored by Troutman Pepper and originally appeared in the Summer 2024 issue of Middle Market Executive.
Confirm Applicability Far in Advance of Deadlines
The first step companies should take is to conduct a CTA exemption analysis so they can confirm whether the CTA is applicable to them and, if so, whether any of the 23 exemptions from reporting are applicable. Many of the exemptions are focused on parties that already regularly report to the federal government, like banks, utilities, tax exempt entities and entities with publicly traded securities.
The first step companies should take is to conduct a CTA exemption analysis so they can confirm whether the CTA is applicable to them and, if so, whether any of the 23 exemptions from reporting are applicable.
If a company is exempt as of the time that a report would be required to be filed, then, for so long as it remains exempt, it is not required to file a report under the CTA. However, if circumstances change and it no longer qualifies for any exemption, it will have 30 days to gather all relevant information and file. Given this abbreviated time frame and the detailed information required to be reported about equity-holders and controlling persons, it is important to complete the exemption analysis and potential reporting analysis in advance so the reporting company can meet the 30-day deadline if and when any relevant exemptions are no longer applicable.
Reporting Obligations for Companies
Reporting companies that are part of an affiliated group should confirm what portion of an exemption analysis, as well as any subsequent beneficial ownership analysis and filing, must be handled by each of them. It will be important for non-exempt reporting companies to obtain relevant information needed to conduct those activities and timely report to ensure compliance and avoid the costly penalties imposed by the CTA.
The sophistication of typical private equity investment structures and the nuanced manner in which these structures are often managed may make the analysis regarding “substantial control” under the CTA time consuming. As such, companies should begin working on the analysis far in advance of any applicable filing deadline.
Also, it is advisable for companies to plan to file, if needed, closer to the applicable filing deadline because additional FAQs are expected from FinCEN and the CTA is being challenged in some courts. There may be greater clarity achieved as time goes on that will allow reporting companies to complete their report with greater certainty.
Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.
