Corporate Transparency Act: What It Means For You

The Corporate Transparency Act (CTA) marks a significant shift in the business landscape, requiring companies to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This legislation aims to deter illegal activities such as money laundering and terrorist financing. For real estate investors, understanding the implications of the CTA is critical. 

Watch E73: Corporate Transparency Act with Jason Marino, Esq.

This Act affects how deals are structured and can impact due diligence processes. It presents new challenges and opportunities for investors devoted to transparency, ethical investing, and regulatory compliance. 

What Is The Corporate Transparency Act (CTA)?

The Corporate Transparency Act (CTA) became law on January 1, 2021, as part of the more significant Anti-Money Laundering Act of 2020. The CTA was established in response to increased transparency in business operations, specifically targeting anonymous shell companies often used for illicit purposes such as money laundering, fraud, and tax evasion.

The law's critical implication mandates the Financial Crimes Enforcement Network (FinCEN) to establish and maintain a national database of beneficial ownership information. Beneficial owners own or control 25% or more of an entity or exercise substantial control over it. 

If you file with the Secretary of State, you'll need to report; this requirement applies to:

• all new and existing corporations
• limited liability companies (LLCs)
• LPs

When Will Reporting Start For The CTA?

Reporting starts on January 1, 2024, for all entities formed on or after that date. Pre-existing entities must report by January 1, 2025.

What Information Must Be Reported?

You must report the following information:

• Company Name (and any trade name)
• Business Address
• State of Formation
• EIN
• Owner's name, DOB, and home address
• A PDF copy of your identification 

The information must be updated if there are changes. Updates must occur within 30 days of the change.

Impacts of the Corporate Transparency Act on Real Estate Investors

The Corporate Transparency Act (CTA) brings a new level of scrutiny to real estate transactions, effectively removing the veil of anonymity that previously shrouded property purchases made through shell companies. The CTA could significantly impact how real estate investors operate.

Real estate investors who value their privacy must adjust to this new landscape. The CTA mandates the disclosure of personal information to FinCEN, which could deter some investors. This transparency can foster greater trust and legitimacy within the real estate industry, potentially attracting more investors.

Investors must proactively maintain compliance with the CTA, regularly updating ownership details with FinCEN and meeting all obligations. Non-compliance penalties are severe, so investors must understand these regulatory changes to avoid associated fines and penalties.

Due diligence may become more complex. With more information available, investors must thoroughly review the beneficial ownership of potential investment properties. It may require additional resources and time but can result in more informed investment decisions. 

While the CTA poses new challenges for real estate investors, it also offers opportunities for those willing to adapt to the new transparency demands.

How Do I Stay Compliant With The CTA?

Compliance with the CTA requires reporting beneficial ownership information to FinCEN at the time of company formation and within one year of any change in beneficial ownership. 

Non-compliance can result in:

• civil penalties of up to $500 per day
• criminal fines of up to $10,000
• imprisonment for up to two years, or both.

Businesses should review their current structures and processes and prepare to disclose the required information. Seek legal advice to ensure you fully understand the scope of the law and its implications.

Exemptions To The Corporate Transparency Act

The CTA has several exemptions, mainly applicable to larger U.S. entities and those already subject to particular regulatory oversight. 

Entities exempt from the reporting requirements of the CTA typically include:

• Entities with 20 or more full-time employees in the U.S
• Entities with an operating presence at a physical office within the U.S
• Entities with $5 million or more of U.S. revenue
• Entities that are already subject to substantial U.S. regulatory oversight

Key Takeaways

The Corporate Transparency Act (CTA), enacted on January 1, 2021, necessitates companies to disclose beneficial ownership details to the Financial Crimes Enforcement Network (FinCEN):

• The reporting requirement applies to all new and existing corporations, limited liability companies (LLCs), and LPs. Reporting starts on January 1, 2024.
• The CTA presents new challenges and opportunities for real estate investors. It necessitates extended due diligence and transparency, which could impact investment decisions.
• Non-compliance with CTA can lead to severe penalties.

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