A new federal law requires businesses to disclose personal information and photographs of their owners and control persons, including retained fractional executives. This article from JD Supra has you covered.
Why this matters for you. From Wall Street to Main Street to your street, the vast majority of private and many nonprofit entities, will be swept into Corporate Transparency Act (CTA) compliance. If you are a fractional executive to a business, you need to pay attention. Not only is initial reporting important, so is ongoing compliance.
What is this law about? If you have not heard of the CTA, you are not alone. Many business owners, executives and their professional advisors, are taken aback upon first learning of the CTA’s existence and scope. At its core, the CTA requires reporting of personal direct and indirect beneficial ownership and control information pertaining to businesses operating in the U.S. The personal identifying information (PII) includes name, date of birth, physical home address and your photograph. The financial crimes enforcement arm of the U.S. Department of Treasury (FinCEN) is currently building out a beneficial ownership secure system (BOSS) to receive, store and manage this vast influx of information. FinCEN estimates that over 32 million now-existing businesses will be required to report in year one. This law aims to prevent money laundering, illicit financial activities, corrupt practices and terrorist financing, at the expense of many legitimate businesses (and their owners and control persons) being swept up in its bycatch.
Who must report? Beginning January 1, 2024, PII must be reported for persons owning, directly or indirectly, 25% or more of any class or category of profit ownership in a business, or who have or may assert, directly or indirectly, “substantial control” over a business.
Important for the fractional executive, the CTA provides that every senior officers of a business (which would include fractional executives) are, by definition, persons with “substantial control,” and must therefore be disclosed in a reporting companies CTA report to FinCEN.
Although the CTA contains an “employee” exception to the beneficial owner reporting requirements, this except expressly does not apply to senior officers of the reporting company. According to FinCEN, senior officers “perform functions that inherently involve substantial control and go beyond mere employee status.”
What ongoing reporting obligation exists? Once the initial report is filed, this information must be updated within 30 days of any subsequent event that makes the previously reported information inaccurate. Attribution of ownership and what constitutes substantial control will vary from business to business, and will require analysis and professional advice.
Further, fractional executive positions tend to be transitory by nature, and companies onboarding or offboarding fractional executives will necessitate contemporaneous updated reporting to FinCEN.
Read the full article on JD Supra.
