Corporate Transparency Act Part 2 Beneficial Owner – Exercising Substantial Control

April 14, 2023  |  Carole Clark Isakson, Georgia Kellogg

The Corporate Transparency Act (the “CTA”) was enacted by Congress on January 1, 2021 as part of the federal government’s initiative to crack down on illicit activities. Effective January 1, 2024, most new and existing entities registered to do business in the United States will be mandated to file a report with the Financial Crimes Enforcement Network (“FinCEN”) disclosing information about the entity’s beneficial owners.

The CTA defines a beneficial owner as any individual who, directly or indirectly, either exercises “substantial control” over the company or owns or controls at least 25% or more of the company’s ownership interests. An individual may directly or indirectly own or control the ownership interest of the company through various means, including joint ownership with one or more persons, through another individual acting as an intermediary, custodian, or agent, as a trustee, beneficiary, or grantor of a trust or similar arrangement, or by means of ownership or control of one or more intermediary entities that separately or collectively own or control the ownership interest of the company subject to reporting.

“Substantial control” is exercised over the company if the individual 1) serves as a senior officer of the company; 2) has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body); or 3) directs, determines, or has substantial influence over important decisions made by the company, including decisions pertaining to the nature, scope, and attributes of the company’s business.

An individual may directly or indirectly exercise substantial control over the company by participating on the company’s board, owning or control a majority of the voting rights of the company, maintaining rights associated with any financing arrangement or interest in the company, or controlling an intermediary entity that either separately or collectively exercises substantial control over the company. Therefore, a senior officer or other individual serving on the company’s board is considered to exercise substantial control over the company and therefore be subject to the beneficial ownership reporting requirements under the CTA even if they do not own an equity interest in the company.

The information required to be reported for each beneficial owner is the following: 1) full legal name of the individual; 2) date of birth; 3) residential street address; 4) a unique identifying number and issuing jurisdiction from on the following acceptable forms of documentation: i) a non-expired US or foreign government passport, or ii) a non-expired driver’s license; and 5) a photocopy of said document.

Barna, Guzy & Steffen, Ltd.’s corporate law practice group continues to closely monitor developments in this area. If you believe you or your business may be impacted by these requirements, one of our knowledgeable corporate attorneys would be happy to navigate you through this process. Please contact BGS attorneys Carole Clark Isakson, Scott M. Hagel for assistance.