November 21st, 2023
Contributor: Anthony Wilkinson
What Do Trustees Need to Know About the Corporate Transparency Act?
As part of the broader initiative to combat financial misconduct, the recent enactment of the Corporate Transparency Act (CTA) marks a significant shift in corporate governance. This legislation, aimed at curbing the misuse of shell companies, introduces mandatory reporting of beneficial owners, a development that brings trustees into a new light. As custodians of trusts, trustees now play a pivotal role in ensuring adherence to these transparency requirements. For business owners and managers, understanding the impact of the CTA on trustees is crucial, as it reshapes the landscape of trust management and compliance. This article aims to guide you through these changes, ensuring that your business remains informed and compliant in this evolving regulatory environment.
Trustees: Key Players in Corporate Transparency
Under the Corporate Transparency Act (CTA), private trusts, while important, do not take center stage. They are not categorized as "Reporting Companies" and thus do not have direct filing obligations. However, the role of trustees in this context is far more significant. Unlike the trusts themselves, trustees may be identified as "Beneficial Owners." This crucial role requires them to provide essential information about Reporting Companies to the Financial Crimes Enforcement Network (FinCEN).
This brings us to an important question: Who exactly are these Beneficial Owners under the CTA?
Who Are Beneficial Owners?
Beneficial Owners, as defined by the CTA, fall into two main categories based on their level of control and ownership in Reporting Companies. Understanding these categories is vital for trustees and business managers.
Substantial Control: The Decision Makers
The first category includes individuals who have substantial control over a Reporting Company. These are the senior officers and key decision-makers within an organization. They hold significant authority and are responsible for crucial operational or financial decisions. This includes trustees who sit on the board of a Reporting Company in which the trust holds an ownership interest. It's important to note that it's the individual trustees or those with relevant decision-making authority under the trust agreement who are considered Beneficial Owners, not the trust itself.
Ownership Interest: Significant Stakeholders
The second category comprises those who have a significant ownership interest in a Reporting Company. Specifically, this refers to anyone, including trusts, holding at least a 25% stake in such a company. In the case of trusts, we look at the trustees, the settlors (in the case of a revocable trust), and certain beneficiaries. These individuals might include trustees with decision-making rights regarding the trust's interests in the company, the settlor of a revocable trust who has the power to revoke or amend the trust, or a beneficiary who is either the sole permissible recipient of the trust's income and principal or has the right to demand significant assets from the trust.
Understanding the Consequences of Non-Compliance
Navigating the requirements of the Corporate Transparency Act (CTA) isn't just a matter of best practice; it's a legal imperative. As trustees and business managers, understanding the consequences of non-compliance is crucial. Failing to meet these obligations can lead to significant penalties, emphasizing the importance of providing the required information to Reporting Companies for timely reporting to FinCEN.
Here are the key consequences you should be aware of:
Civil Penalties for Ongoing Non-Compliance:
- Up to $500 for each day the violation continues, accumulating daily if the required information is not provided.
Criminal Penalties for Willful Non-Compliance:
- In cases where there's a willful failure to file a required report or if false or incomplete beneficial ownership information is provided, the stakes are higher.
- Individuals may face criminal charges, which could include imprisonment for up to 2 years.
- Additionally, there could be a financial fine of up to $10,000.
It’s imperative for trustees and anyone involved in the management of Reporting Companies to ensure that all beneficial ownership information is accurately and promptly reported. Failing to do so not only risks the operational legality of the business but also exposes individuals to serious legal consequences.
We trust that this article has provided valuable insights into the intricacies of the Corporate Transparency Act and its implications for trustees. This piece is part of a comprehensive series by Wilkinson Law LLC, aimed at deepening your understanding of the CTA. Previously, we explored the potential impacts of the NY LLC Transparency Act in our article, "Alert NY LLC Owners: NY Considers Publicizing Your Personal Info," highlighting critical developments in New York’s legislative environment.
Starting next week, we will continue this informative journey with the following articles in our series:
- "What Do Real Estate Investors Need to Know About the Corporate Transparency Act?"
- "What Do Accountants Need to Know About the Corporate Transparency Act?"
- "What Do Foreign Owners of Companies in the USA Need to Know About the Corporate Transparency Act?"
We invite you to read these upcoming articles to gain a more comprehensive understanding of how the CTA affects various stakeholders.If you have any questions or comments, please contact us at firstname.lastname@example.org or (732) 410-7595. If you need legal advice specific to your situation, please ask to schedule a consultation with an attorney to discuss your company’s goals.
This article is for informational purposes only and should not be relied upon as tax or legal advice. Please consult professionals for advice tailored to your specific situation. The author and publisher assume no responsibility for any errors or omissions or for any actions taken based on the information presented.
Categories: Corporate Transparency Act