The Corporate Transparency Act (CTA) is a significant piece of legislation aimed at increasing  transparency in corporate ownership to combat illicit activities such as money laundering and tax evasion.  Under the CTA, certain entities are required to report information about their beneficial owners to the  Financial Crimes Enforcement Network (FinCEN). 

Who is a Beneficial Owner? 

A beneficial owner is defined under the CTA as an individual who, directly or indirectly, through any  contract, arrangement, understanding, relationship, or otherwise: 

 

• Exercises substantial control over the entity; or 

 

 

• Owns or controls not less than 25 percent of the ownership interests of the entity. What is Substantial Control? 

 

"Substantial control" refers to the ability of an individual to make significant decisions on behalf of the  entity. This can include, but is not limited to, the power to: 

 

• Appoint or remove senior officers or a majority of the board of directors; 

 

 

• Direct, determine, or have substantial influence over important decisions made by the entity; • Exercise any other form of substantial control over the entity. 

 

The CTA aims to capture those individuals who have a significant influence over the operations and  decisions of the entity, even if they do not hold a large percentage of ownership. 

 

What is the Effect of Community Property Laws? 

In Texas, community property laws can affect the determination of who is considered a beneficial owner.  Texas is a community property state, meaning that most property acquired during a marriage is owned  jointly by both spouses. This can complicate the identification of beneficial owners, as ownership interests  held by one spouse may be considered jointly owned by the other spouse. 

For example, if one spouse owns 30 percent of an entity, under community property laws, the other  spouse may also be considered to have an ownership interest in that 30 percent. This joint ownership can  impact the reporting requirements under the CTA, as both spouses may need to be disclosed as beneficial  owners. 

 

Conclusion 

The Corporate Transparency Act represents a significant step towards greater transparency in corporate  ownership. Understanding the definitions and implications of beneficial ownership, including the concept  of substantial control and the effects of community property laws, is crucial for compliance. Entities  operating in Texas must be particularly mindful of how community property laws may influence their  reporting obligations under the CTA. 

 

If you have any questions or need assistance with compliance, please do not hesitate to contact Glavy Law  by email, bud.glavy@glavylaw.com or by telephone, 210-880-1777.