ALI CLE Blog

Below you will find articles from our legal journals on a variety of pressing legal topics.

ACHIEVING CORPORATE TRANSPARENCY ACT EXPERTISE– THIRTEEN BASIC QUESTIONS THAT CTA EXPERTS MUST BE ABLE TO ANSWER

Dec 8, 2023 | ALI CLE, Business Organization and Corporate Law

Achieving Corporate Transparency Act Expertise – Thirteen Basic Questions That CTA Experts Must Be Able to Answer - by John M. Cunningham - presented by ALI CLE

On January 1, 2021,  Congress enacted a major new federal statute called the Corporate Transparency Act (the “CTA”).  The CTA imposes stringent duties on almost all U.S. business entities and on many foreign entities doing business in the United States to provide potentially sensitive information about themselves, their owners, their managers and, if any, their “company applicants” to the Financial Crimes Enforcement Network (“FinCen”).  (FinCen is the agency of the U.S. Treasury Department responsible for CTA matters.)  The provision of these reports (“FinCen reports”) by covered business entities (called “reporting companies” under the CTA) may impose  significant administrative burdens on these companies and may trigger significant professional fees.  But any failure by reporting companies to comply with their CTA duties may make them and their personnel liable for serious civil and criminal penalties.

In this article, I will assume that while you may have at least a general awareness of the above CTA facts, you are not a CTA expert.  However, I will also assume that, in order to provide useful CTA advice and services to your current clients and future clients, you want to become one.  The purpose of this article is to help you achieve CTA expertise.

In this post, I will address 13 CTA questions, set forth in Part II of the article, Paragraphs A through M.  These paragraphs address questions that every CTA expert must be able to answer, but that, to my knowledge, have not yet been addressed in any other journal.  As further noted below, these and 35 other questions that CTA experts must know how to answer are set forth comprehensively in Exhibit A to this article.

I. THE CORPORATE TRANSPARENCY ACT – 13 BASIC QUESTIONS

A. WHY IS THE STATUTORY TITLE OF THE CTA MISLEADING?

The statutory title of the CTA can easily be misread by non-experts to imply that the CTA applies only to corporate companies and that it provides information about these companies to the general public.  This understandable misreading by non-experts may result in their ignoring the CTA.  However, as further discussed below, the CTA applies, in fact:

  • Not just to corporations but also to all other types of U.S. business entities and to certain types of foreign business entities except for the U.S. and foreign business entities that the CPA exempts from coverage.  These entities include, for example, LLCs, general and limited partnerships and, in some cases, business trusts.
  • The CTA provides transparency (i.e., knowledge) about basic facts concerning these entities not to the general public but only to FinCen itself and to the federal and state authorities narrowly defined in the CTA.

B. WHAT QUESTIONS MUST CTA EXPERTS BE ABLE TO ANSWER BESIDES THE ABOVE QUESTION?

As noted, all of the questions that CTA experts must be able to answer—for example, in response to calls from clients—are listed in the attached Exhibit A.  By my count, there are 35 such questions.  Obviously, to have expertise about any subject means, above all, to be able to answer all significant questions about that subject.

In my view, if you are able to answer all of the questions in Exhibit A and if, in addition, with the help of colleagues who are already CTA experts, you have had a reasonable amount of experience in providing sound advice about the CTA to your clients and in competently planning and drafting CTA provisions in their ownership agreements, you will be a CTA expert.

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