The Corporate Transparency Act (CTA) has emerged as a pivotal law  enforced by the US Department of the Treasury, aiming to revolutionize the way companies disclose information about their beneficial ownership.

Designed to combat money laundering, tax evasion, and financial crimes, the CTA establishes a central register of beneficial ownership information, aligning the United States with over thirty other countries committed to enhanced transparency. The US Treasury estimates that tens of millions of organizations will be required to submit under this rule.

What is a Beneficial Owner?

Under the provisions of the Corporate Transparency Act, a beneficial owner is someone who, directly or indirectly:

  • exercises substantial control over the company
  • owns or controls at least 25% of the ownership interests of the company.

Simply put, a beneficial owner is a person who enjoys the benefits of ownership and has the power to vote or influence decisions within the company. This influence extends to crucial aspects such as business nature, major expenditures, investments, selection of business lines, compensation schemes, and governance document amendments. Beneficial owners play a pivotal role in shaping the direction and success of the reporting company.

Calculating ownership interest involves assessing the individual’s percentage of total combined voting power or total combined value of capital ownership or profit interests. While most companies with straightforward organizational structures will find the identification and reporting of beneficial owners a seamless process, the impact of these stakeholders on corporate decisions cannot be overstated.

Who is Not a Beneficial Owner?

The Corporate Transparency Act provides exemptions from the definition of “beneficial owner” for certain individuals. A beneficial owner is not:

  • A minor child.
  • Someone acting as a nominee, intermediary, custodian, or agent on behalf of another.
  • An employee of the company, excluding senior officers.
  • Someone with a future interest through a right of inheritance.
  • A creditor of the company.

These exemptions serve to clarify and refine the scope of beneficial ownership, ensuring that the reporting requirements are targeted at the individuals who genuinely influence company decisions.

How is a Beneficial Owner Different from a Legal Owner?

While legal and beneficial ownership are often synonymous, the Corporate Transparency Act distinguishes between the two. In some cases, the beneficial owner of an organization may opt for anonymity, creating a separate legal owner. The act aims to address situations where beneficial ownership is concealed for potentially illicit purposes.

A beneficial owner reaps the benefits of ownership, even when the legal title is held by another entity. On the other hand, a legal owner holds the formal title to a property. This distinction is crucial, especially when assets are held in trust or when publicly traded securities are registered under a broker’s name for safety and convenience.

SixFifty Can Help!

Navigating the complexities of the Corporate Transparency Act is made easier with SixFifty’s expertise. Our legal experts have developed a FREE Corporate Transparency Act Worksheet, a valuable tool to assess whether your business needs to file a beneficial ownership report. This user-friendly tool guides you through pertinent questions about your business, providing clarity on your reporting obligations.

The Corporate Transparency Act Worksheet will serve as documentation proving that you took the obligation seriously—whether or not you find that you need to file a report. Print, sign, and retain the completed worksheet for recordkeeping purposes.

The Corporate Transparency Act Worksheet is available in the SixFifty Marketplace. For more information, or to see the Marketplace in action, request a free demo.