Page 22 - BusinessWest July 21, 2021

Getting a Clear Look
Businesses Need to Understand Federal Corporate Transparency Act
By David Parke, Esq.
Anew federal statute enacted on Jan. 1, 2021 will require many ordinary cor- porations, limited-liability companies, and similar entities to report their beneficial ownership to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The scope of entities and control arrange- ments covered by this new statute is broad. It applies to newly formed, as well as existing, entities, and requires that the beneficial owner- ship information reported to FinCEN be kept up to date. The act provides civil and crimi-
nal consequences for violation of its reporting requirements.
The new Federal Corporate Transparency
Act was enacted as part of the National Defense Authorization Act for Fiscal Year 2021. The act is intended to address the use of shell companies with concealed ownership that have been used for money laundering, terrorist financing, and other criminal activities. Provisions of the act can be found at 31 U.S.C. § 5336.
The act requires that a ‘reporting company,’ which includes a corporation, limited-liability company, or similar entity, unless exempt, sub- mit to FinCEN certain information identifying each individual ‘beneficial owner’ of the entity. The act also requires the reporting of informa-
tion regarding an individual ‘applicant,’ who,
as defined in the statute, files an application to form the entity in the U.S. or to register a foreign entity in the U.S. Changes in such information must also be reported.
The act lists 24
exemptions from its
definition of ‘reporting
company.’ These gen-
erally include publicly
traded companies;
many tax-exempt
entities; businesses
with more than 20
full-time employees
and more than $5 mil-
lion in gross annual
receipts; entities such
as banks, insurance companies, financial ser- vices, and other companies that are already sub- ject to regulation; and certain dormant entities as defined in the statute. However, many small, family-owned, or special-purpose entities will be subject to the act.
A ‘beneficial owner,’ whose information must be provided to FinCEN, means an individual who directly or indirectly, through a contract, arrange- ment, understanding, relationship, or otherwise, exercises substantial control over the entity, or
owns or controls at least 25% of the ownership interests in the entity. Certain individuals, includ- ing minor children if information regarding the parent or guardian is reported, employees whose control or economic benefits derive solely from
“The scope of entities and control arrangements covered by this new statute is broad. It applies to newly formed, as well as existing, entities.”
their employment status, and individuals whose only interest is through a right of inheritance, are not regarded as beneficial owners.
The reporting requirements of the act will take effect on the effective date of the regulations that are expected to be issued by the Treasury Depart- ment. Regulations must be promulgated by Jan. 1, 2022. It is expected that questions regarding
Transparency
Continued on page 45
The Royal Law Firm
is a Woman-Owned Corporate Law Firm Servicing New England
413.586.2288
www.TheRoyalLawFirm.com
A Certified Women’s Business Enterprise
CERTIFIED WITH THE FOLLOWING ORGANIZATIONS:
The Massachusetts Supplier Diversity Office
The United States Small Business Administration’s Federal Contracting Program The National Association of Minority and Women Owned Law Firms
The Women’s Business Enterprise National Council
Good things come to those who work hard.
At People’s United Bank, we believe there’s only one way to get something done right: By giving 100%. That’s the level of dedication we bring to our clients’ businesses, whether helping customers with financing for a complex expansion or automating the accounts payable process. We work hard to make sure our solutions work. So get in touch when you’re ready for more than just another bank.
Dedication gets it done.
Jaimye Hebert
Massachusetts | 413-735-6533
peoples.com/business
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