Corporate Transparency Act Blog Series (Part 2) – Who Qualifies as a Beneficial Owner under the Corporate Transparency Act?

The Corporate Transparency Act (the “CTA”) goes into effect on January 1, 2024, and requires businesses to report information to FinCEN pertaining to the businesses’ beneficial owners.

As discussed in Part 1 of this blog series entitled, “The Corporate Transparency Act’s Implications,” the CTA requires businesses to report information to FinCEN related to the businesses’ beneficial owners.

A beneficial owner refers to two types of individuals: (1) those individuals who exercise substantial control over the business and (2) those individuals who hold at least 25 percent of the ownership interests of the business.

Examples of individuals who exercise “substantial control” are:

• People who serve as senior officers of the business, such as President, CEO, COO, CFO, or General Counsel.
• People who have authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body).
• People who direct, determine, or have substantial influence over important decisions made by the entity, including numerous specified types of decisions.
• People who have “any other form of substantial control” over the Reporting Company – an undefined, “catch-all” criteria.

Although the meaning of substantial control is defined by the CTA, the last example of substantial control – the “catch-all” provision – is somewhat vague, suggesting that businesses should over-disclose individuals and their information when filing a report with FinCEN. There is still a lot of uncertainty when it comes to the CTA’s implications, but it is likely the required disclosures will result in a substantial burden on small businesses compared to larger ones, because many small businesses do not qualify as exempt businesses under the CTA.

Williams Parker is actively tracking updates to the CTA to ensure our clients are informed. Reach out to Williams Parker today to guide you through these regulatory hurdles.