Corporate Transparency Act – Trusts as Beneficial Owners of Reporting Companies

The following article will discuss compliance with the Corporate Transparency Act when the Beneficial Owner of a Reporting Company is a trust.

The Federal Government passed the Corporate Transparency Act with bipartisan support in 2021. The reporting requirements under the Corporate Transparency Act (the “Act”) went into effect on January 1, 2024. Reporting Companies, as defined by the Act, are corporations, limited liability companies, or other similar entities that are created by filing a document with the Secretary of State. A Reporting Company, that does not fall within one of the exceptions enumerated in the Act, must submit a filing with FinCen disclosing the Reporting Company’s Beneficial Owners. Beneficial Owners fall into two categories: (1) owns not less than 25% of the ownership interest of the Reporting Company or (2) exercises substantial control over the Reporting Company.

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If the trust owns 25% or more of the Reporting Company or the trust has substantial control over the Reporting Company, then the individuals who ultimately own the interest in the Reporting Company through the trust will qualify as Beneficial Owners. The trustee of the trust must be reported if the trustee has the authority to dispose of trust assets or vote shares/units of the Reporting Company. The settlor of the trust must be reported if the settlor has the right to revoke the trust or withdraw assets from the trust (the settlor is usually the party who creates the trust). A beneficiary must be reported if the beneficiary is the sole recipient of income and principal of the trust or has the power to withdraw substantially all of the trust assets.

So, the short answer is that yes, individuals associated with a trust (trustee, settlor, and/or beneficiary) will need to be disclosed as Beneficial Owners of a Reporting Company.

Will the trust itself be considered a Reporting Company? If the trust was not created by filing a document with the Secretary of State, then the trust will not be considered to be a Reporting Company and, as such, the trust itself will not have any reporting obligations under the Act.

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Chris Corpus

Founding Partner at Corpus Law Inc

This article does not provide legal advice or create an attorney-client relationship. If you have any questions or would like to learn more about this topic or if you have other legal questions, do not hesitate to contact Chris Corpus, Esq. of Corpus Law Inc at 216-973-2475. Copyright Christopher A. Corpus 2024.