What the Corporate Transparency Act means for investment firms and real estate trusts

The Corporate Transparency Act (CTA) went into effect on January 1, 2024, meaning many U.S. businesses must now comply with the new Beneficial Ownership Information (BOI) reporting requirements.  

Investment funds and entities, such as Private Equity firms and Real Estate Investment Trusts (REITs), which do not qualify for an exemption should be aware of the CTA’s reporting requirements. Nonexempt investment funds and entities will have to provide certain information to the Financial Crimes Enforcement Network (FinCEN) to comply with the new legislation.  

The guide below includes information for investment firms and real estate trusts regarding the CTA, so you can ensure your business stays compliant with this new law. 

What is the CTA? 

Congress passed the Corporate Transparency Act in 2021 in a bid to increase transparency regarding business owner and shareholder information. Reporting companies are now required to file a BOI report to the FinCEN. By ordering reporting companies to provide this information, the CTA aims to improve businesses’ due diligence and reduce illicit financial activities such as money laundering and tax evasion. 

What is a reporting company? 

A reporting company refers to domestic and foreign corporations, limited liability companies, and other similar entities that are formed or registered to do business in the U.S. and do not meet the exemption criteria.  

It is the sole responsibility of investment firms and real estate trusts to determine whether they have reporting company status. If you are unsure of your status, our questionnaire may help you establish whether you must report to FinCEN or not. However, this questionnaire is not legal advice, and it’s recommended to speak to a legal professional to determine your exact status. 

What are the CTA reporting requirements? 

A reporting company must submit the following information to adhere to the CTA reporting requirements: 

  • Its full legal name 

  • Any “DBA” names 

  • Its main place of business in the U.S. 

  • Its jurisdiction of formation (or jurisdiction of first registration if a foreign reporting company) 

  • Its IRS Taxpayer Identification Number (TIN) or FEIN (or tax ID issued by a foreign jurisdiction if a foreign reporting company) 

Along with providing business information, reporting companies must supply Beneficial Owner details. A Beneficial Owner has an ownership control of at least 25% and the following information must be provided to the FinCEN about owners: 

  • Full name 

  • Date of birth 

  • Residential address 

  • A government-approved ID  

Reporting Companies formed or registered in the U.S. on or after January 1, 2024, must also report Company Applicant information. This information consists of the same Personal Identifiable Information (PII) as required above for Beneficial Owners. 

Which companies are exempt from the CTA? 

There are 23 types of companies exempt from the Corporate Transparency Act reporting rules. Some Private Equity firms and REITs may qualify for exemption if they meet the following criteria: 

  • An investment company as defined by the Investment Company Act (1940) or Investment Advisers Act (1940) and registered with the U.S. Securities and Exchange Commission 

  • A pooled investment vehicle 

  • A large operating company 

  • An inactive entity 

How to effectively track ownership information 

Investment firms and real estate trusts often deal with multi-entity portfolios, acquisitions, and numerous shareholders. Therefore, developing effective processes to track beneficial ownership information is essential, especially if organizational changes occur. 

For example, REITs need to find a way to identify beneficial owners when working with new investors. During the lifetime of a real estate property, ownership can frequently change, and to comply with the CTA, ownership must always be accurately reported. 

With regards to Private Equity firms, acquiring a significant ownership stake in a private company may involve several investors. This ownership information will need to be reported and kept up to date, especially if the company is eventually sold to another investor. 

While companies can directly file their BOI reports via the FinCEN website, due to the private nature of this information and the frequency of possible changes, it’s recommended to manage CTA filing requirements in an entity management system. Entity management software presents an optimal way to track ownership changes for investment and real estate firms, as new data can be added and amended in one place and provide a single source of truth that is always accurate.  

Computershare’s Global Entity Management System, GEMS™ provides businesses with the tools they need to manage and overview ownership data so they can always stay compliant. To discover how Computershare can assist you with your Beneficial Ownership reporting requirements and ensure you comply with the CTA, contact us today.  

 

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