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.
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.
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:
Reporting starts on January 1, 2024, for all entities formed on or after that date. Pre-existing entities must report by January 1, 2025.
You must report the following information:
The information must be updated if there are changes. Updates must occur within 30 days of the change.
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.
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:
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.
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:
The Corporate Transparency Act (CTA), enacted on January 1, 2021, necessitates companies to disclose beneficial ownership details to the Financial Crimes Enforcement Network (FinCEN):
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Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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