Sophisticated family businesses often employ legal entities and governance structures to support complex and dynamic economics and decision-making related to the organization of investments, creditor management, incentives, and economic allocations. Administration of these structures requires compliance, which now includes the US Corporate Transparency Act (CTA). This is likely to be managed by a centralized management company, such as a family office or a private trust company (PTC), each a private family management company (PFMC).

Here's an overview of the steps needed to comply with the CTA, which came into force on 1 January 2024 and requires most companies formed or registered before 1 January 2024 to file reports by 1 January 2025. It's done much written about the CTA in recent months, most of which provides general guidance, background, and details of the statute and regulations. We will assume that the reader is already familiar with the basics and will focus on process and presentation.

Related: Corporate Transparency Act six months after

CTA compliance can seem challenging, but with proper preparation and methodical steps, it doesn't have to be overwhelming. As a starting point, KMFPs should identify an individual(s) (a responsible person) who will collect and monitor:

1. Identification of reporting companies;
2. Whether any of the CTA's 23 exceptions to the definition of reporting company may apply;
3. Governing documents to identify the beneficial owners of each reporting company;
4. Reportable information to be included in the beneficial ownership information reporting (BOIR);
5. BOIR (which will then be prepared and filed); AND
6. Possible changes for future updates.

For PTCs, a compliance officer can ensure that the company meets all statutory and regulatory requirements for itself and the entities it oversees. The Compliance Officer will be responsible for ensuring compliance with the CTA.

Related: Corporate Transparency Act Q&A

The family Office likely to have officers and a board of managers or directors. A secretary, chief compliance officer or learning officer may be the responsible person. They will engage with residents and beneficiaries, as well as those in management roles, to obtain relevant input and oversee compliance requirements.

Identify reporting companies

Identifying entities that companies can report on shouldn't take long, but it serves as a crucial first step. The responsible person designated within a KMFK must describe which domestic entities are formed through filing with the Secretary of State's office and which foreign entities are registered to do business with the Secretary of State's office. PFMCs are usually organized under state law and, therefore, will fall within the definition of reporting company. The responsible person should also be able to quickly determine which entities may not be reporting companies if they are formed by agreement rather than by state filing.

Determine if any exceptions apply

If an entity is identified as a potential reporting company, it may be exempt from filing a BOIR if it falls within one of the CTA's 23 listed exceptions to the definition of reporting company. The CTA exempts companies: (1) regulated by a state or federal banking regulator (such as a trust company), and (2) large operating companies, which are those that: (i) employ more than 20 full-time employees wholly located in the US, (ii) have more than $5 million in gross revenue in the preceding tax year, and (iii) have an operating presence in a physical office within the United States. In some cases, this may also apply to their affiliates.

Analyze the Governing Documents

Each reporting company required to report must:

Identify beneficial owners. This includes:

• Any individual who either: (1) owns, directly or indirectly, more than 25% of the equity interests in a reporting company, or (2) exercises significant control over the entity (usually individuals in key management roles). This is the greater value of their voting rights or the value of their interests. Each option is treated as if exercised. An individual exercises substantial control if that individual: (1) serves as an executive officer of a reporting company, (2) has the power to remove and replace any executive officer or a majority of the board of directors, or (3) directs, determines, or has substantial influence on “important” decisions.
• Entities formed after January 1, 2024. These entities would report up to two company applicants.

Review governing documents. Trace through books and records that reflect current ownership and management and identify or update historical changes in ownership and management to properly identify and memorialize beneficial owners.

Ask questions. Multiple reporting positions are likely to be available in relation to certain entities, fiduciaries and leadership roles. When ambiguities arise, the responsible party must ask questions and at the same time recall the conclusions.

• • Beliefs? Family businesses with a PFMC may hold assets in trust, which affects the ownership and control analysis under the CTA rules. If a trust owns 25% or more of a reporting company, it is necessary to determine whether any of the individuals who are trustees, settlors or beneficiaries of the trust are beneficial owners.
  • Who does what? Identifying which fiduciary, director, officer or manager exercises substantial control will be a facts and circumstances analysis that will require a review of the governing documents.

Isolate and compile reportable information

Once beneficial owners have been identified, isolate and compile reportable information. This will include:

• For the reporting company: (1) names and trade names, (2) address, (3) state of incorporation, and (4) tax identification number.
• For each beneficial owner: (1) name and date of birth, (2) address, (3) passport or driver's license, and (4) photograph. A FinCEN identifier is recommended.

Prepare and file BOIR

Internal protocols are necessary to ensure timely compliance with the CTA's reporting requirements because the CTA imposes an ongoing obligation to update reportable information after the filing of the initial BOIR. Updates must be made within 30 days of becoming aware of the change. KMFP personnel will be trained to recognize when an updated BOIR is required, thereby assisting in CTA compliance on an ongoing basis.

Avoid unnecessary fire drills