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Corporate Transparency Act and Its Impacts on Small Businesses

Almost all small businesses, including corporations, partnerships, and limited liability companies, will be significantly impacted by the Corporate Transparency Act (CTA) commencing on January 1, 2024. In order to comply with this new federal law, business owners and operators, as well as individuals establishing legal entities for various purposes like real estate investments, need to take proactive measures to prepare themselves for the upcoming changes.

The CTA is a crucial anti-money laundering legislation that was passed in 2021 as a part of the National Defense Authorization Act. For many years, Congress has been concerned about the misuse of “shell companies” to facilitate criminal activities, tax evasion, terrorist financing, and human trafficking. The CTA aims to address these concerns by mandating the disclosure of beneficial ownership and company applicant information to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

In response to the CTA’s enactment, FinCEN has been working towards the development of a reporting process to ensure compliance with the new requirements when they become operative on the effective date.

The CTA casts a wide net when it comes to reporting companies, encompassing both new and existing entities, as well as domestic and foreign ones. Essentially, any legal entity will be considered a reporting company, creating an extensive compliance burden for affected businesses.

However, the CTA does provide exemptions for certain categories of companies. Unfortunately, most of these exemptions apply to larger entities that already adhere to similar beneficial ownership disclosure regulations. For instance, the exemption for “Large Operating Companies” is applicable only to businesses that employ more than 20 full-time employees, report over $5 million in gross receipts or sales on their tax returns, and maintain a physical office presence in the US.

How AI legalese decoder Can Help

Implementing the necessary measures to comply with the CTA can be challenging for small businesses. However, the AI legalese decoder offers a solution to simplify this process. This advanced technology leverages artificial intelligence to assist businesses in understanding complex legal documents and requirements.

The AI legalese decoder can help by:

• Interpreting Beneficial Ownership and Company Applicant Information: The AI legalese decoder can accurately interpret the definitions and requirements specified by the CTA. It can identify who qualifies as a beneficial owner and company applicant, ensuring businesses gather the necessary information efficiently.
• Automating Data Collection: Collecting and organizing the required information is a time-consuming task. However, the AI legalese decoder can automate the process by extracting relevant details such as full legal names, dates of birth, business and residential addresses, and unique identifying numbers from documents like driver’s licenses or passports.
• Ensuring Timely Compliance: The AI legalese decoder can help businesses develop internal protocols and reminders to ensure they meet the reporting requirements set forth by the CTA. By streamlining the compliance process, companies can avoid penalties and ensure they file their reports within the specified deadlines.
• Assisting in Document Updates: The AI legalese decoder can offer insights and suggestions for updating or negotiating governing documents to include provisions that obligate partners and investors to provide the necessary beneficial ownership information. This ensures businesses remain compliant and can avoid potential complications in the future.
• Supporting Training and Resource Allocation: Identifying company applicants and educating them about ongoing reporting requirements can be challenging. The AI legalese decoder can provide educational materials and resources to assist in training company applicants and ensuring they have the knowledge to fulfill their reporting obligations accurately.
• Facilitating Budgeting and Planning: Complying with the CTA may require allocating specific financial and time resources. The AI legalese decoder can help businesses estimate the costs and time commitments associated with beneficial ownership reporting, allowing them to better plan and budget for 2024.

The CTA is set to greatly impact small businesses and real estate owners and operators. While compliance might seem overwhelming, leveraging the AI legalese decoder can enable companies to navigate the complexity of the new regulations with ease and set themselves up for success in the coming year.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

About the Authors

Matthew Flower is a partner in the corporate, funds, and M&A practices at Morris, Manning & Martin. He specializes in a wide range of transactional matters, including mergers and acquisitions, joint ventures, private securities offerings, fund formations, and general corporate issues.

Matthew Peurach is a partner at Morris, Manning & Martin, focusing on corporate, funds, and tax practices. His expertise lies in structuring commercial real estate transactions, negotiating partnership agreements, structuring equity investments, and forming private equity funds and joint venture-related entities.

Lili Martin-Mashburn, an attorney in the funds and tax practices at Morris, Manning & Martin, has extensive experience in commercial real estate transactions, specifically in structuring and consummating private equity funds and joint venture arrangements.

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