Corporate Transparency Act Affidavit of Beneficial Ownership

Why do I Need a Beneficial Owner Affidavit?

If you are a corporate secretary, company attorney, CPA, officer, or another designated individual responsible for maintaining and submitting records to the US Department of the Treasury’s FinCEN Division under the Federal Corporate Transparency Act, or…

If you are offering guidance based on the information provided by the company’s stakeholders, then an affidavit of beneficial ownership is essential for your protection against liability. This legal statement serves to confirm the identities of the company’s key stakeholders, ensuring the accuracy of the information they provide.

Moreover, the affidavit clarifies the actual controllers of the company, verifying their authority to represent the company’s interests. This written, sworn statement, signed by the declarant, acts as a safeguard for the company, confirming the veracity of the stakeholder’s information.

A notary public notarizes the affidavit, giving it legal authenticity. The affidavit acts as a shield for the company against any inaccuracies in the stakeholder’s data.

In summary, the affidavit of beneficial ownership is a critical instrument for the company, its executives, members, and representatives. It provides a layer of protection against liability and ensures the integrity and accuracy of the information provided by the company’s principal figures.

The CTA Law and Its Impact on Beneficial Ownership Reporting

The Corporate Transparency Act (CTA) mandates that corporations, limited liability companies (LLCs), and partnerships with annual gross revenues under $5 million and fewer than 21 employees must submit detailed information about their Beneficial Owners and Company Applicants to the Financial Crimes Enforcement Network (FinCEN). This requirement underscores the importance of Beneficial Ownership in the realm of corporate governance and financial regulation.

A pivotal aspect of the CTA is the collection and verification of extensive personal data related to Beneficial Owners and Company Applicants. Beneficial Owners, in this context, encompass the owners, shareholders, and executives of these entities. Company Applicants are those responsible for the corporate filings. Ensuring the accuracy and security of this data is crucial, as it will be reported to the US Treasury Department.

Deadlines for submitting this vital data to FinCEN are approaching, highlighting the urgency for corporations, LLCs, and partnerships to prepare. These entities must diligently gather the required information from their Beneficial Owners. In turn, Beneficial Owners are obligated to affirm the truthfulness and precision of the data they provide.

Consequences of Non-Compliance and the Need for Affidavits

Non-compliance with the CTA, including failure to file or submitting inaccurate data, can lead to significant penalties. To mitigate these risks, corporations and LLCs must obtain affidavits from their Beneficial Owners. These affidavits must state that the information provided by the Beneficial Owners is both true and accurate.

The Corporate Transparency Act Affidavits are designed to facilitate the collection of necessary information from Beneficial Owners in a timely and legally sound manner. These affidavits provide a sworn statement from the Beneficial Owners, assuring the authenticity and accuracy of the information to be filed with FinCEN. By utilizing these affidavits, companies can securely and confidently comply with FinCEN’s requirements.

It is imperative for all Beneficial Owners and Company Applicants to prepare their information promptly by completing the Corporate Transparency Act Affidavits. This proactive step ensures readiness for timely compliance with the filing requirements.

To ensure compliance and avoid penalties, it is advisable to purchase and utilize the Corporate Transparency Act Affidavits as soon as possible. This early action will facilitate a smooth and efficient process in meeting the CTA requirements, safeguarding the interests of the Beneficial Owners and the entities they represent.

Ensuring Compliance with the Corporate Transparency Act: The Critical Role of Beneficial Ownership Information

Business owners will need to be ready for the new requirements that come with the CTA.

The CTA has been in the works for a while, but it is now law and filing will be required coming in 2022. Corporate and Limited Liability Company (LLC) Beneficial Owners will need to be up to date on what is happening with their company and make sure they are prepared when the new rules take effect.

This includes getting a handle on what they need to do in early 2022 in order to be compliant with the new regulations.

Beneficial Ownership and The CTA

The Corporate Transparency Act (CTA) is a new Federal law that requires companies to disclose information about their actual “Beneficial” Ownership” to the US Department of Treasury through its FinCEN division.

Companies will, in addition, also need to provide information on the “Applicant” setting up the company, the “Signatory” signing the filed documents as true and accurate, and the “Preparer”. We will explain these concepts below.

The CTA legislation was passed in 2021 and this means that more information about the company’s ownership will be available for scrutiny by the US Treasury Department, banks, and law enforcement.

The company needs to prepare early and identify who are the Beneficial Owners, individual controlling the company, and the Applicant. The company also needs to determine who is going to sign (Signatory) the FinCEN filing and face potential legal issues for lying or misrepresenting ownership of the company.

In the United States, the identity of these individual(s) is not always easy to determine.

In many cases, a company’s management will be responsible to provide the data to be reported as part of the new CTA law.

By tackling this information gathering early, the company can make sure that they are not violating any laws or regulations and making themselves liable for any penalties.

Companies are responsible for collecting, storing and filing with FinCEN. These companies (corporations, LLC’s and Trusts, etc.), should have a legal document such as an affidavit, signed by each beneficial owner swearing to the truth of their information, to avoid liability.

Identifying Beneficial Ownership

At the heart of the CTA is the concept of Beneficial Ownership. A Beneficial Owner is defined as a natural person who either owns at least 25% of the company’s shares or exercises significant control over the company, such as a board member or executive. This includes individuals who directly or indirectly, through entities like trusts, control the company. The US Treasury Department is keen on unmasking the real individuals behind corporate entities.

FinCEN defines this as “ownership of stock, equity interests, partnership interests, or other forms of ownership interests in a business entity that entitles the owner to profits from the entity’s activities”.

The company may also be owned by a trust, and the person who has the power to withdraw profits from that trust, is also considered to be a Beneficial Owner. The US Treasury Department is collecting information on the natural persons involved in the ownership roles of US companies, directly or indirectly through an entity such as a trust.

Gathering Beneficial Owner Data: Responsibilities and Processes

Who is Responsible to Gather the FinCEN Beneficial Owner Information?

Because the responsibility to file FinCEN Beneficial Owner information lies on the company, the company needs to be able to provide, gather, store and file this information in order to comply with the FinCEN regulations.

The person assigned to gather the Beneficial Owner information varies depending on the company or organization that is requesting it. It is important to identify who will be responsible for collecting the Beneficial Owner information as one of the first steps of your best practice process. In addition to gathering the data, the company is responsible for storing this information (securely as it contains personally identifiable information PII) and providing that information to the government.

The Applicant

The Applicant is the person or persons who formed the company. The Applicant can be an individual, group of people, or even a trust. The Applicant is the person that began the incorporation process by registering the company with a Secretary of State or tribal organization to form a corporation. The individual(s) or firms registering companies with states or tribal organizations, are commonly called “incorporators.”

You need to know who filed your company with the Secretary of State or tribal organization when it was originally formed. This is the Applicant. There is no exception for lawyers or CPA’s that have filed the corporation or LLC (no matter how long ago, if it remains active). The new CTA law will require the Applicant to provide the same information to FinCen as a Beneficial Owner.

Approval to Use Beneficial Owner and Applicant Data

You should, as part of your best practices, have each Beneficial Owner, Applicant and Signatory execute an affidavit with the company, swearing as to the truth of the information provided and granting the company the right to use the information from these individuals in your actions and filings with FinCEN.

Preparation for Limited Liability Company (LLC) Data

A member-managed LLC should prepare for the future before it becomes a drawn-out burden. The tasks involved to file the LLC’s Beneficial Owners’ information are necessary, but not daunting. Once you update the LLC operating agreement language and get approval by a Member vote on the new requirements, you should be able to acquire the necessary data and file it with FinCen.

Storing the Data

Data must be stored in a secure location as required by FinCEN, for a term of five years from the date of filing or update. It is important to store data in a way that ensures that it is safe and confidential.

Early preparation will help to collect, validate and store the sensitive data on Beneficial Owners.

Risk and Liability

It is important for any company to understand the risks and liabilities that come with storing any personal data. Your CTA data set will contain personal information that must be protected, such as, names, addresses, email addresses, phone numbers, photo identification, and other contact information of all registered Beneficial Owners and Applicants in the United States and other counties.

This requires an understanding of what personal data is being processed, where it is stored and who has access to it. Liability for any damages can occur as a result of improper use or storage of this information.

Some of the risks include:

  • Data breaches can happen when a company doesn’t take proper measures to protect its data from hackers.
  • Loss of data due to natural disasters or human error.
  • Theft of data can happen when a company does not take proper measures to protect its data from thieves.
  • Theft of equipment containing CTA Data can happen when a company does not take proper measures to protect its equipment from theft.

In order to avoid these risks and liabilities, companies should be prepared by storing the CTA Data for five years for each filing with a trusted registrar.