Is your cap table ready to meet the new US Corporate Transparency Act requirements?

Following the introduction of the Corporate Transparency Act (CTA), January 1st 2024, many U.S. business are now required for the first time to file corporate transparency reports, including beneficial ownership information. For eligible businesses the current filing deadline is January 1st 2025, otherwise they could face potential penalties. But what is corporate transparency trying to achieve and how could using a cap table software solution help?

What is the Corporate Transparency Act (CTA)?

In short the CTA requires reporting companies to identify who the beneficial owner or owners of the company are. Companies must submit this, along with other information about the legal entity, in a Beneficial Ownership Information Report (BOIR).

What is this information needed for?

Primarily the Act was established to help combat financial crime and illicit activities, such as tax fraud, money laundering, financing for terrorism, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption and other related activities. Being able to see the beneficial owners will help authorities to reduce activities that obscure the ownership of companies in the US. The focus of the CTA at present is on smaller and medium-sized entities – including shell companies.

What is a beneficial owner?

Typically a beneficial owner is someone who directly, or indirectly, has a significant stake in the ownership of a company. This could be that they have a major influence on the operations or business decisions, owns at least 25% of the company’s shares (either directly or through a combination of holdings) or has a similar control over the company’s equity.

Control means that an individual person might only have 10% of shares in their own name, but through another company/trust/fund/etc, e.g. through an investment company that they control via the Board, may own a further 20% which would give them a total of 30%, therefor putting them in a controlling position.

This is information that most companies won’t generally know just off-hand and documenting it is required for the reporting.

This is why having a clean, well-managed and up-to-date cap table is essential.

How could cap table software help?

It’s highly likely that the details of your company ownership is going to change over time. This is why an organised cap ‘capitalization’ table is one of the most crucial items that any company looking to track its ownership requires.

A cap table not only shows the ownership make-up, but it’s also one of the things that any venture capitalist (VC) or investor is going to come looking for when deciding whether to invest in a company or not, so it meets many functions, not just those pertaining to the Act.

Companies will often offer employees different types of equity and these employees will likely earn their equity on different vesting schedules. This can lead to frequent changes to your ownership details. Tracking this using cap table software that can automate the updating of this information could help save you valuable time and effort.

Does the CTA only impact companies headquartered in the US?

Regardless of where you are based having oversight of your company’s ownership is good hygiene, but you should always seek out professional advice to determine what legislation applies to your company. In the UK, for example. there have been a number of updates to the framework to tackle financial crime over recent years, including the Economic Crime and Corporate Transparency Act 2023.

What next?

At J.P. Morgan Workplace Solutions we can provide the tools to help you effortlessly manage all your equity, from inception to IPO and even beyond. Our cloud-based solution allows you to track investors, model future funding rounds, and so much more, freeing you up to concentrate on driving your business forward.

Talk to us today, and see what our cap table services can do for you and your business.