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The Corporate Transparency Act Overview

The Corporate Transparency Act Overview

The Corporate Transparency Act (CTA) was enacted as part of the Anti-Money Laundering Act of 2020, and requires certain entities – primarily smaller and unregulated companies – to file a report identifying beneficial owners and company applicants with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This report identifies the entities’ beneficial owners, the persons who ultimately own or control the company, and provides similar identifying information about those individuals who formed the entity. Entities in existence prior to 2024 are given until January 1, 2025 to report. Entities formed in 2024 must file their reports within 90 days of formation, and entitles formed in 2025 or later must file their reports within 30 days of formation.

Which Companies Are Required To Report? 

Reporting companies include corporations, LLCs, other entities, and business trusts[1] that do not qualify for an exemption and are created or registered to do business by filing a document with Arizona’s Corporation Commission or the secretary of state or similar office of another state. Both domestic and foreign entities registered to do business in the United States are included.

Exemptions To Reporting Requirements [2]

There are some exemptions to the reporting requirement including:

  • Large operating companies – Companies with at least 20 full time employees that have a physical office in the United States and more than $5 million in annual gross receipts or sales
  • Public companies
  • Inactive companies that were formed on or before January 1, 2020 and meet other requirements
  • Tax-Exempt entities
  • Governmental authorities
  • Certain companies in regulated industries that meet the applicable conditions, such as banks, credit unions, money services businesses, broker-dealers, securities reporting issuers, investment companies or investment advisers, venture capital fund advisers, insurance companies, and Commodity Exchange Act registered entities. 
  • Pooled investment vehicles that meet the applicable conditions

Information To Be Reported

The reporting company is responsible for reporting the following:

  • The reporting company’s full name, DBA, address, jurisdiction of formation or registration, TIN or other unique tax ID number
  • For each Beneficial Owner – the owner’s full name, date of birth, address, photo ID with ID number shown. 
  • Company applicants (for reporting companies formed on or after January 1, 2024): Up to two responsible individuals’ full names, dates of birth, addresses, photo IDs with ID numbers shown. 

Who Is A Beneficial Owner?[3] 

A Beneficial Owner includes an individual who:

  • Directly or indirectly exercises substantial control over the reporting company. This includes senior officers (president, chief executive officer, chief operating office, chief financial officer, general counsel). It also includes individuals with the ability to make important decisions on behalf of the reporting company.
  • Directly or indirectly, owns or controls at least 25% of the ownership interests of the reporting company, including of convertible interests irrespective of whether these convertible interests are debt or equity, along with directly held options and warrants. 
  • Is a trustee of a trust, or another individual, who has the authority to dispose of trust assets
  • A settlor or grantor of a trust who retains the right to revoke the trust or withdraw the trust’s assets
  • A trust beneficiary who either is the sole permissible beneficiary of the trust’s income and principal, or who has a right to demand a distribution of substantially all of the trust’s assets

Exemptions To Beneficial Owners

  • Minor children (if a parent or legal guardian’s information is reported)
  • Individuals acting as nominees, intermediaries, custodians or agents
  • Employees acting solely as employees and not as senior officers
  • Individuals whose only interest in a reporting company is a future interest through a right of inheritance
  • Creditors of a reporting company 

Who Is A Company Applicant?

A Company Applicant is:

  • An individual who creates a domestic reporting company or who first registers a foreign entity to do business in the United States
  • An individual who is responsible for directing or controlling the relevant formation or registration document by another
  • The Company Applicants will be limited to two individuals.

FinCEN Identifier

An individual may submit the required information, as detailed above, directly to FinCEN, and receive a unique FinCEN identifier. This individual can then provide their FinCEN identifier, instead of their personal information, to a reporting company to be used in filing a report. A FinCEN Identifier can be obtained on or after January 1, 2024.

How And When To Report

Reporting companies will file their reports in a nonpublic database maintained by FinCEN, referred to as the Beneficial Ownership Secure System (BOSS). FinCEN has taken steps to secure the database from the public. The forms for reporting are expected to be released before January 1, 2024. Companies in existence prior to 2024 are given until January 1, 2025 to report. Companies formed in 2024 must file their reports within 90 days of formation, and companies formed in 2025 or later must file their reports within 30 days of formation.

Additionally, reporting companies have an ongoing obligation to update filings within 30 days after any of the reported information changes. This means that reporting companies will need to ensure that their beneficial owners are aware of this responsibility and place an obligation on those beneficial owners to promptly inform the reporting company of any changes. 

Who Will Have Access To Reported Information?

Access to the reported information will be provided to:

  • Federal agencies engaged in law enforcement, national security or intelligence activity, in furtherance of those activities
  • State, local and tribal law enforcement, if authorized by a court for use in criminal or civil investigations 
  • Federal agency on behalf of a non-US law enforcement or a foreign prosecutor or judge
  • With the consent of the Reporting Company, to a financial institutions to facilitate compliance with customer due diligence requirements
  • Federal and state regulators assessing financial institutions to facilitate compliance with customer due diligence requirements.
  • Officers and employees of the Treasury Department for tax administration purposes

Penalties For Failing To Comply

Penalties for noncompliance or misuse of beneficial ownership information include civil and criminal penalties for willful reporting violations, including fines of up to $10,000 and imprisonment for not more than two years. Civil and criminal penalties for unauthorized disclosure and use of beneficial ownership information also exist. 

Conclusion

The rules for filing contain many variables for determining who must report under the CTA. Remember, it is the Reporting Company’s responsibility to ensure compliance with the CTA. FinCEN has provided a reporting guide for small businesses to determine their reporting requirements. The guide can be found here.


[1] A business trust is rarely used in Arizona. It is a statutory trust created by filing articles, declaration of trust, or the trust agreement with the Arizona Corporation Commission.

[2] This is a general list of exemptions. Specific requirements for each category are listed in the rules and regulations of the CTA and should be reviewed for determination of exemption eligibility.

[3] Other categories of beneficial owners should be reviewed in the final rules.

Is There a Business Doctor in the House? Five Business Health Check Points

Is There a Business Doctor in the House? Five Business Health Check Points

People generally don’t go into business because they are good at running businesses. Many people go into business because they are passionate about something and they want to share that passion with the world. Whether it’s food, fashion, music, technology, or something else, business owners are good at what they do. The mundane realities of running a business, however, are often overlooked or placed on the back-burner. Ignoring the business basics can create big problems. Now is a good time to check-in on the health of your business. Here are five business checklist items to consider.

1. Governing Documents

  • LLCs. Do you have an Operating Agreement? If so, is it up to date? Arizona’s new Limited Liability Company Act is effective September 1, 2020 for all existing businesses, and this may impact your existing Operating Agreement. If you don’t have an Operating Agreement (and, in some cases, even if you do), the new law will impose certain rights and obligations on members and managers. Accordingly, you may want to create an Operating Agreement, or amend your existing Operating Agreement, now to avoid certain defaults under the new law.
  • Corporations. Do you have Bylaws? Do you have a Shareholder Agreement? If so, when was the last time you looked at either of them? Do they still say what you want them to say?
  • All Entities. Do you have all of the licenses required to operate your business? Making sure that you are operating in accordance with the law is imperative.
  • Special COVID-19 Considerations. Are you in compliance with any state or city requirements governing your business? Have you reviewed and put into place CDC, OSHA and ADHS business requirements for safe re-opening?

2. Employees

  • Employee Handbook. If you have employees, you must comply with a variety of different state and federal employment laws. These laws vary depending upon the size of your organization. Employee handbooks are a good way for business owners to communicate employee rights and obligations and ensure compliance with the law. A handbook must, however, be properly prepared and up to date with current law.
  • Employment Agreements. While you are not required to enter into a formal employment agreement with your employees, there are some circumstances in which one might be appropriate or preferred. Be careful to make sure the employment agreement doesn’t violate any applicable law.
  • Non-Compete Agreements/Restrictive Covenants. Companies often wish to restrict what employees can do after their employment with the company ends. Such an agreement may prohibit an employee from competing with the company, disclosing or using the company’s confidential information, and soliciting company employees or customers. Whether such an agreement is enforceable depends on a variety of factors, including state law, public policy, and whether the provisions are reasonable. If you have an agreement in place, is it enforceable?
  • Form I-9 – and E-Verify: Employment Eligibility Verification. Are you verifying employment eligibility as required? If not, you need to understand what you can and cannot do in order to become compliant.
  • Wages, Payroll taxes and Withholdings. Are you properly calculating, reporting, and paying wages, payroll taxes and withholding? Are employees correctly categorized as exempt or non-exempt? It is critical that this is done properly. The costs and penalties can be severe.
  • Employees vs. Independent Contractors. Please do not misclassify employees as independent contractors. Businesses often misclassify employees. Sometimes this misclassification is accidental. Other times, it is a misguided attempt to lower operational costs. Misclassification is expensive. If you are not sure whether someone is properly classified, having an experienced attorney make an assessment will likely be cost effective.

3. Operating Documents

What documents do you utilize in the day-to-day operations of your business? Managing expectations is no easy task. Documents can help. No matter the business, one of more of the following documents may prove useful:

  • Customer Agreements. Agreements with customers, clients, or patients help describe the product or define the scope of the service, and set out payment terms, late fees, interest, liability limitations, and more.
  • Waivers. Another way to limit liability is through use of a liability waiver. Depending upon your business, these may be highly encouraged.
  • Leases and Vendor Agreements. If you lease space or utilize vendors, then you are now the customer or client. Leases and Vendor Agreements grant you an opportunity to negotiate terms and make sure your expectations are properly set out.
  • Impact of COVID-19. Business owners must consider or reconsider waivers and Force Majeure provisions relative to COVID-19.

4. Branding and Intellectual Property

As you build your business, it is important to remember that you are building a brand. The last thing you want to do is build a fantastic business with a strong following only to be told you have to change your name. You likewise don’t want to be accused of infringement. The best way to guard against this is to protect your intellectual property by registering trademarks, filing copyrights, and prosecuting patents. Has anyone assisted you in creating your intellectual property? What about your website? If so, those parties might have claims to the work created or may have created legal liability for you if the work they “created” infringes on another person’s work.

5. Self-Care and Succession

It is important to remember to take time for self-care. Running a business takes a lot of time and energy. It’s never a 9-5 job. But, business owners often feel as though their business can’t run without them. If that’s the case, then staying healthy is good for business. A true sign of success however, is when the business can run without you in the event of your death, disability, or retirement. Have you planned for that? In terms of self-care, having a succession plan can provide peace of mind. Hastily prepared succession plans created in a time of crisis are rarely as effective as people might hope. Thoughtfully planning for the future is the best gift you can give to all of the people dependent on your business – your employees, your family, and you!

The good thing is, even if you are not passionate about all the legal stuff, we are. Stay passionate about your business and delegate the rest to advisors who can alleviate some of the burdens of running a business. Retaining a business law attorney will allow you to focus on what you’re passionate about and really good at!

Your Guide to Essential Estate Planning Documents

Your Guide to Essential Estate Planning Documents

If you’re like most people, there is a laundry list of things you’d rather do than think about your estate plan. While it can be a challenging area to discuss, your estate plan is essential to ensure you and your family are protected and cared for, and that your assets are distributed as you wish at your death. While estate planning is not one-size-fits-all, it will be helpful to familiarize yourself with the documents that are often included in estate plans. Your attorney will work with you to customize these documents to meet your specific estate planning goals.

An effective estate plan includes documents to:

  • Care for your financial and health care needs while you are living,
  • Care for your family and loved ones per your instructions, and
  • Distribute your assets after your death.

Revocable Living Trust 

A trust is often the cornerstone of your estate plan. Your trust will be used to manage most of your assets during your lifetime, during any periods of incapacity, and after your death.

One benefit of a trust is that it is very flexible and customizable. Upon your death, your trust will include instructions regarding how you would like your assets distributed. For example, your trust can provide for education and health care for your children or grandchildren, but delay principal distributions until they reach particular ages or achieve certain accomplishments. In addition, protection can be added to prevent your children or grandchildren from accessing trust assets if they are having creditor issues, substance abuse issues, going through a divorce, or other similar circumstances.

Another benefit of a trust is that assets owned by your trust avoid probate. Probate is the court supervised process for determining the validity of a Last Will and Testament (if one exists), and managing and distributing probate assets. Probate is often costly and time-consuming, and should be avoided if possible. One of the best ways to avoid probate is to title your appropriate assets to your trust.

Common terms you may find in your Trust:

  • Revocable Living Trust – The trust is Revocable, which means you will be able to revoke or amend the trust during your lifetime. Since you are creating your trust during your lifetime, it is a Living trust. Another type of trust can be created through your Last Will and Testament at your death (called a testamentary trust).
  • Settlor – The Settlor, also called a Trustor, is the person(s) who created the trust and who transferred assets to the trust. You, and your spouse if a joint trust, will be the Settlors of your trust.
  • Trustee – The Trustee is the person(s) or institution who manages your trust assets, including making necessary decisions regarding the trust. You, and your spouse if a joint trust, will likely be the initial Trustees of your trust. You will name successors to serve in your place if you are unable to continue serving as Trustee.

Last Will and Testament 

Your Will is only effective at your death, which means it cannot be used to manage your assets if you become incapacitated. If your estate plan includes a Revocable Living Trust, your Will is a “Pour-Over Will,” which takes assets outside of your trust at your death and transfers them to your trust. If your estate plan does not include a Revocable Living Trust, your Will will be used to manage your probate estate and distribute your assets at your death. Assets in either a Pour-Over Will or a traditional Will need to go through probate before they are distributed.

Your Will also names a Guardian or Conservator for your minor or incapacitated children.

Common terms you may find in your Will:

  • Testator/Testatrix – The person who makes the Will. Testator can be used for either a male or a female; Testatrix is used only for a female.
  • Personal Representative – In Arizona, the Personal Representative, also called an Executor, is the person you nominate in your Will, and who is appointed by the court, to carry out the responsibilities and terms of your Will.
  • Guardian – The Guardian is the person you nominate, and who is appointed by the court, to care for your minor or incapacitated children.
  • Conservator – The Conservator is the person you nominate, and who is appointed by the court, to oversee the finances for your minor or incapacitated children.

Power of Attorney 

Your Power of Attorney, also called a Durable Power of Attorney or Financial Power of Attorney, is the document used to name an Agent to manage your finances and assets outside of your Trust during any periods when you are incapacitated. Besides managing assets, a properly drafted Power of Attorney will allow your Agent to manage areas not commonly considered, such as dealing with your utilities or mail. Your Agent has a duty to manage your assets for your benefit and must follow the guidelines and powers you grant in the Power of Attorney. You may choose to give your Agent an immediate power, or have it come into effect only upon your incapacity.

Common terms you may find in your Power of Attorney:

  • Durable – Your Power of Attorney is Durable if it remains valid and is not impacted by the passage of time.
  • Agent – Your Agent is the person you name in your Power of Attorney to manage your finances during your incapacity.

Health Care Power of Attorney/Mental Health Care Power of Attorney 

Your Health Care Power of Attorney gives your Agent, sometimes called Health Care Agent, the power to make medical decisions on your behalf if you are unable to do so yourself. Your Agent will be given the power to consent or refuse treatment, medications, and procedures on your behalf. Your Agent will also be able to hire health care personnel, procure health care equipment, and review your medical records. Your Agent has the responsibility of making the decisions consistent with any wishes you have made known.

Your Health Care Power of Attorney may contain a Mental Health Care Power of Attorney, or the Mental Health Care Power of Attorney may be a separate document. The Mental Health Care Power of Attorney gives your Agent the power to make mental health care decisions on your behalf, similar to those allowed in the Health Care Power of Attorney. In Arizona, you are required to specifically initial in your Mental Health Care Power of Attorney if you wish to allow your Agent to admit you to an inpatient psychiatric facility.

Common terms you may find in your Health Care Power of Attorney:

  • Agent – Your Agent is the person you name in your Health Care Power of Attorney/Mental Health Care Power of Attorney to make health care/mental health care decisions on your behalf if you are unable to do so yourself.

Living Will 

Your Living Will, also called an Advance Directive, is the document in which you specify what, if any, life-sustaining interventions you may want if your death is imminent or if you are in a permanent vegetative state. This important document will give your Health Care Agent guidance about what decisions you would want made under different circumstances.

Having a basic understanding of common estate planning documents can help you begin thinking about your estate plan. However, your estate planning attorney will guide you through the process and help you determine the best plan to ensure you are protected and your needs are met.