Corporate Transparency Act
Congress passed the National Defense Authorization Act. This annual bill relates to U.S. defense spending. This year includes a measure known as the Corporate Transparency Act. The bill requires that the true, human owners of companies formed in the U.S. disclose their identities at the point of formation and upon any change—effectively banning anonymous shell companies.
The target is anonymous shell companies used to launder money. The biggest chains in the nursing home industry uses shell companies to siphon funds away from the facility to related entities.
The act requires the owners of any company to file a report that discloses each person “associated” with the company. Associated is defined as either owning 25% or more of it or exercises substantial control over it. That report, including name, birthdate, address, and an identifying number, goes to the Financial Crimes Enforcement Network (FinCEN).
A reporting company is defined as a corporation, limited liability company or other similar entity that is created by filing a document with the secretary of state (or an equivalent office) of any state, or formed under foreign law and registered to do business in the United States in a like manner. The Act exempts many categories of companies from the reporting requirement, specifically:
- Companies that are already subject to supervision or otherwise closely regulated by the federal government (e.g., banks)
- Dormant companies
- Companies that employ more than 20 people, filed a tax return reporting gross receipts in excess of $5 million, and have a physical presence in the United States
- Any entity owned by an entity otherwise exempt
A beneficial owner is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise (i) exercises substantial control over an entity or (ii) owns or controls at least 25% of the ownership interests in an entity. A few notable exceptions from the Act include:
- Minors, provided that information with respect to a parent is otherwise reported
- An individual acting as nominee, intermediary, custodian or agent on behalf of another individual
- Persons who control an entity solely because of their employment
- An individual whose only interest in a reporting company is through a right of inheritance
An applicant is defined broadly as an individual who files an application to form an entity.