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How the Corporate Transparency Act could affect investors

On Behalf of | Oct 27, 2023 | Regulatory Work |

Those investing in businesses would often prefer to do so discreetly. People don’t want to have their names tied to specific companies or have the extent of their personal resources made public knowledge. 

Many investors, including those who provide substantial backing for startups and successful companies, would rather not have their names associated with the organizations that they fund. However, the ability of investors to remain relatively anonymous is about to change thanks to the upcoming implementation of the Corporate Transparency Act (CTA). 

What does the CTA mean for investors? 

Businesses have to disclose anyone with a beneficial ownership interest. Historically, people could invest as much as they wanted in businesses without necessarily making that information known to the public or even the government. However, it will become significantly more difficult to obfuscate one’s financial investments after the CTA goes into effect

As of January 1st, 2024, all new businesses will have an obligation to submit a report to the Financial Crimes Enforcement Network (FinCEN) containing the name and other crucial identifying information of anyone with a 25% stake in the business or more. Existing businesses will need to put together reports by January 2025. 

Additionally, businesses will also have to disclose the names of those who filed paperwork to create the business or those who guided others in the process of filing business formation documents. The goal of the CTA is to help prevent money laundering and to connect investors to business enterprises. 

Those who hope to retain their personal privacy may therefore need to carefully gauge how much they invest in any one organization to avoid reaching the threshold that would trigger mandatory reporting to FinCEN. Learning about upcoming changes to federal financial laws can have a major impact on those who want to invest but also hope to preserve their privacy.

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