The Corporate Transparency Act: A New Federal Reporting Requirement for Businesses

Warning: This post is pretty lawyerly, and certainly more technical than is the case for most entreVIEW content, but we thought the potential implications of this new law were worth detailing.

As businesses prepare for the year ahead, that planning should include analysis of compliance with the Corporate Transparency Act (CTA). The coverage of the CTA is very broad and requires certain business entities to submit a report to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Although there are exemptions, those exemptions essentially apply to entities that already have fairly extensive reporting requirements (i.e., banks or large companies), which means that smaller companies not currently subject to such reporting requirements will likely need to comply with submitting the reports. Although the CTA recently became law, FinCEN must issue regulations to implement the new ownership reporting requirements within one year (by December 31, 2021).

I. Main Rule

The main CTA reporting provision requires each applicant forming a corporation, limited liability company or similar entity to file a report with FinCEN containing a list of the beneficial owners of the corporation, limited liability company or similar entity that identifies each beneficial owner by:

1. full legal name;
2. date of birth;
3. current residential or business street address; and
4. 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.

Furthermore, if the applicant is not a beneficial owner, the report must also provide the identification information described above relating to such applicant.

II. Definitions

The following are some of the definitions in the CTA:

applicant — any natural person who files an application to form a corporation, limited liability company or similar entity under the laws of a State or Indian Tribe.

beneficial owner — means a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise:

1. exercises substantial control over a corporation, limited liability company or similar entity;
2. owns 25 percent or more of the equity interests of a corporation, limited liability company
        or similar entity; or
3. receives substantial economic benefits from the assets of a corporation, limited liability
        company or similar entity.

III. Timing of Reports

It is anticipated FinCEN’s subsequent regulations will describe in detail the timing of reports; however, based on the CTA, businesses should be aware of the report timeframe for the following:

• Existing Entities — Any reporting company that has been formed or registered before the effective date of FinCEN’s regulations is to submit a report within two years of the effective date of such regulations.
• New Entities — Any reporting company that is formed after the effective date of FinCEN’s regulations will be required to submit a report when formed.
• Annual Reports — Not only must entities make an initial filing, but they must also make an annual filing listing the current beneficial owners and the information required in the initial report as well as any changes in beneficial owners during the previous year.

IV.  Exemptions

Not all entities must comply with the reporting requirement as the CTA provides certain exemptions. Those exemptions largely apply to companies that already face existing reporting requirements. However, just because a company meets an exemption does not mean the entity can take no action. The CTA requires an entity claiming an exemption to identify the specific exemption it is claiming, state that the entity meets the requirements for the exemption and provide identification information for the applicant or prospective officer, director or similar agent certifying the above information. There are additional clarifications for the exemptions below, but for brevity’s sake, those have been removed. As such, the listing should be used for purposes of understanding the general nature of the exemptions and not as an authoritative guide for specific requirements of each exemption.

Helping You Fulfill Your New Year’s Resolutions: The Smart Home Gym

For many, the start of 2021 means a brand new set of New Year’s resolutions. At the top of the list of most popular New Year’s resolutions is, as you’d expect, getting more exercise. According to a study conducted by Statistica in late 2020, a staggering 44% of participants in the study were planning to start 2021 with this resolution. But with many gyms closed due to the global pandemic (or due to the anxiety caused by going to a gym in a global pandemic), sticking to this popular resolution may be more difficult than in past years.

Enter: the smart home gym. Most people have heard of home gyms and many probably own one or more of them, whether in the form of a treadmill, exercise bike or otherwise. In recent years, though, the options for home gyms have expanded greatly. You can now find a home gym that offers just about any workout you can imagine — running, biking, weight lifting, kickboxing, etc. Home gyms have also become significantly more advanced and technologically innovative in recent years, some even with Artificial Intelligence.

Greg Sestero & Tom Bissell, The Disaster Artist: My Life Inside the Room, the Greatest Bad Movie Ever Made (Simon & Schuster, 2013)

In my book reviews over lo these many years, I’ve often expanded on the commonly accepted notion that entrepreneurial activity is exclusively economically oriented — that an entrepreneur is someone who builds a successful business starting from scratch, typically as a result of exploiting a new-found market niche or, more prosaically, by building a better mousetrap.

And now, as Monty Python would say, for something completely different.

The blurb for this book describes the subject film, “The Room,” as “the Citizen Kane of bad movies.”  I have to confess that I haven’t seen it.  My curiosity was piqued when James Franco won a Golden Globe in 2017 for his appearance as Tommy Wiseau, the driving force behind “The Room,” in the movie made from this book.

The typical entrepreneurial scenario involves someone with a great idea but not necessarily the financial wherewithal to exploit it, leading to a story filled with successive rounds of venture financing and innumerable compromises along the way. “The Disaster Artist,” by contrast, is the story of a man with a dream and plenty of money, enough that he doesn’t need to refine his vision to satisfy others. The statistics tell the story: the film had a budget of $6 million, and box office receipts of $1,800 (yes, that’s the correct number) in its original release.

The film has gone on to achieve cult status as the best bad movie ever. The book is an entertaining view of what happens to an entrepreneur and his idea when he or she does not need to deal with the reality check that is the marketplace.