Navigating legal compliance for beneficial owner reporting

As of January 1, 2024, a new legal framework, the Corporate Transparency Act (CTA), has come into effect with significant compliance requirements for many US businesses. There is limited legal precedent around noncompliance for businesses, which means there is significant risk for all companies, particularly large or complex entities.

This is a unique challenge - for startups and businesses that have raised money, the board of advisors and investors can all be considered beneficial owners, under different conditions. There are massive implications for non-compliance, which includes failing to file on time, filing inaccurate beneficial owner information, or not updating beneficial owner information. This comes with civil penalties of up to $500 for each day, and criminal penalties of up to two years imprisonment and a fine of up to $10k.

• Definition and identification: Legal counsel can help businesses understand the definition of a "beneficial owner" as per the CTA, which includes any individual who exercises substantial control over the reporting company, or controls a percent of the company's ownership interests.

• Documentation and reporting: A lawyer can guide the process of collecting, documenting, and reporting the required information on beneficial owners to FinCEN, ensuring that all data is accurately captured and submitted in compliance with the CTA regulations, and tracked for your records.

• Structuring for compliance: Legal advisors can provide guidance on how to structure your company to meet the transparency requirements without unnecessarily complicating your business operations. This might involve reevaluating the company's existing structure or considering changes to the ownership and control arrangements.

• Governance practice: Lawyers can also help develop governance practices that ensure ongoing compliance with the CTA, including processes for regularly updating beneficial ownership information as changes occur within the organization. The burden on beneficial owners should be governed effectively.

Businesses may need to conduct due diligence on their vendors, partners, and other third parties to ensure they are also in compliance with beneficial ownership reporting requirements. Legal counsel can assist in drafting and reviewing contracts that include provisions to ensure compliance across the business ecosystem.

• Developing compliance strategies: Legal experts can help formulate comprehensive compliance strategies that address all aspects of the CTA, including beneficial ownership reporting. This can include creating internal policies and procedures, employee training programs, and compliance checklists.

• Risk assessment and mitigation: Lawyers can conduct risk assessments to identify potential areas of non-compliance with the CTA and recommend actions to mitigate these risks. This might involve reviewing existing business relationships, investment structures, and operational practices.

Legal counsel can provide advice on the implications of failing to meet beneficial ownership reporting requirements and represent the company in any disputes or investigations by US authorities.

The CTA and its implementing regulations will likely evolve over time. A legal advisor can help ensure that your business stays informed about any changes to the law or its interpretation and adjusts its compliance strategies accordingly.