The majority of commercial real estate in the Los Angeles area is acquired, owned, financed, leased and operated through the use of an entity, such as a limited liability company, corporation or limited partnership.
There are many reasons for holding real estate assets this way, including commercial lender requirements, limitations on liability for interest owners, privacy concerns and tax advantages. However, the entity shield that may protect and obscure the beneficial owners of a real estate asset has created an opportunity for bad actors engaging in money laundering and other financial crimes.
The response from Congress has been a set of new reporting requirements in the form of the federal Corporate Transparency Act (CTA) that went into effect on January 1, 2024. The CTA affects countless existing real estate entities with holdings in the Los Angeles area, and compliance will require the attention of all of the real estate community.
REPORTS AND DEADLINES
Commencing on January 1, 2024, most entities formed by a filing with a secretary of state’s office (including, corporations, limited partnerships, limited liability companies, limited liability limited partnerships, and statutory trusts) must file a report (the “CTA Report”) with the Financial Crimes Enforcement Network (“FinCEN”), reporting certain information about the entity and the persons who own and control it. The initial filing deadlines are as follows:
• Entities in existence prior to January 1, 2024, must file the CTA Report by the end of 2024
• Entities formed during 2024 must file the CTA Report within 90 days of formation
• Entities formed on or after January 1, 2025, must file the CTA Report within 30 days of formation
Once filed, a CTA Report must be updated within 30 days after a change to any information on the CTA Report. There are criminal and civil penalties for not complying with the new rules.
These reporting requirements are new and, in many cases, may be challenging to manage. Reporting companies will need to trace ownership and control in each entity to identify all “Beneficial Owners,” which include interest holders of 25% or more as well as any party exercising control over the entity, like officers, managers, directors and trustees, among others.
WHAT CAN YOU DO NOW TO PREPARE?
• Local real estate owners and investors should have someone in their organization whose responsibility it is to learn about and manage the CTA requirements.
• Prepare organization charts for all existing entities.
• Revise all agreements between, among,
or otherwise governing, owners and senior executives of companies, to require them to (1) obtain a FinCEN identifier, and (2) timely provide the information so companies can meet their reporting obligations.
• Identify the “Beneficial Owners.”
• Have these “Beneficial Owners” obtain their FinCEN Identifiers now.
• Be patient as, according to FinCen, an estimated 32 million companies are required to report this year. There will definitely be some bumps in the road.
This article was prepared by the Corporate Transparency Act (CTA) Committee at Greenberg Glusker LLP. To learn more, visit greenbergglusker.com.
