Dr. Kirby Rosplock
Welcome to the Tamarind Learning Webinar series. We are here today with some incredible attorneys from Withersworldwide, and we're talking about the Corporate Transparency Act. Now, for many of you, this is relatively new information that is just hitting the regulatory environment. But it's pretty important if you find yourself an owner of or have an interest in any number of different legal entities out there, any business structures, partnerships, etcetera. So we're going to learn a lot more about the ramifications of the Corporate Transparency Act shorthand, the CTA, and how it's impacting family offices, trust companies, trust individuals, and most importantly advisors and what their role is in helping file and get prepared for this. So thank you so much to Ivan Sacks, Bill Kambas, and David Guin. Today they're our featured speakers on this call and we're super excited to learn more. So, Ivan, maybe you can just share with us a little bit more about your background and your interest in the CTA.
Ivan Sacks
Sure. Well, I've been a trust and estates planner for the last 30 years or so. That's the focus of my practice. I do a lot of that in an international context as well as for domestic US families. And I'm the head of Withers the Family Office Group. So, I help lead the practice of addressing the diverse needs of multi-generational families that might know any sort of family office structure, whether it's virtual, real, small, big, tall, or the varieties that we know, they come in. And the CTA is going to have a super big impact on all of those kinds of families and their advisors because there are over 32 million companies in the United States that have got to eventually comply with this, either determine that they're exempt, or they've got to register in the next year. So, this is highly relevant to all of us.
Dr. Kirby Rosplock
Thanks, Ivan. Bill, do you want to go next?
Bill Kambas
Certainly. I'm really glad to be here and really glad to be joining this group. I'm a tax lawyer by background, so my expertise dovetails very well with Ivan's and David's. I started my career and continue to serve families and private clients in their investment and business-owning activities. So, I work a lot with clients that have sophisticated investment strategies, whether it's private equity, venture capital, real estate development, or unique projects and joint ventures. I also work with families that own businesses. So in the context of the CTA here, this has become a very big part of my practice in the past six months, and I expect it to continue because those types of families and the family offices and private trust companies that serve them have a number of entities in my world, and many of those entities will need to be reported, all of them will need to be evaluated. And so this has become highly relevant to my practice as well.
Dr. Kirby Rosplock
And last but not least, David.
David Guin
Thanks, Kirby. I have our corporate practice here at Withers, and as many of you may know, Withers is sort of a private capital firm. So, I spend a lot of my time working with family offices and family business owners, structuring, helping them with governance issues, and of late, a lot of advice on the Corporate Transparency Act, how it applies to family offices and family businesses, how people will comply, how they can lessen the burdens of compliance. So, as with all of us, highly relevant to my practice as well.
Dr. Kirby Rosplock
And David, I'm coming right back to you because I know you can help us understand more about what is the Corporate Transparency Act. Why is it making so many ripples in the legal and business realms? And maybe you can just give us an overview.
David Guin
Sure. So, the Corporate Transparency Act was enacted in January of 2021, and interestingly, it had bipartisan support in its adoption. So, if you're hanging your hopes on a change in administration or change in Congress, I wouldn't hang your hat on that. It's unlikely to go away. Congress delegated to FinCEN, the Financial Crimes Enforcement Network, the authority to create regulations to implement the Corporate Transparency Act. So, they set out a set of comprehensive proposed rules that were subject to public comment and adopted their final rules on December 21 of 2023. They've also put out a lot of useful information like a group set of frequently asked questions in a small entity compliance guide that people can reference in helping them try and understand how to comply with the CTA. So, the CTA itself, generally speaking, imposes for the first time, a beneficial ownership reporting obligation on many, many companies. So those companies are any company that was created by the filing of a formation document with a governmental entity. So things like limited liability companies, corporations, and limited partnerships. Interestingly, it would not include general partnerships because they aren't created by filing something. It's a common law construct.
David Guin
And most trusts won't be reporting companies because they don't file a document to create themselves unless you're a statutory trust. But they're still heavily implicated by the CTA, which Bill and Ivan will be talking about a bit later. It also applies to non-US entities. So, if you're a non-US entity that has filed for authority to business in a state within the US, the filing of that certificate of authority will create a beneficial ownership reporting obligation under the CTA interestingly, especially for foreign entities, just to be aware, it's the first state filing that creates the trigger. You don't have to file every time you get authorized in a separate state. So, it's the first filing to either create yourself, not every filing where you get authority to do in separate states or for foreign entities. The first certificate of authority creates the filing obligation. In addition to the reporting company itself, they will have to report who their beneficial owners are, and only for companies formed after January 1, 2024, who the company applicants are. And we'll talk a little bit later about who those are. Ivan made a brief reference to exempted entities.
David Guin
There are 23 categories of exempted entities under the CTA, but they tend to be in highly regulated industries like banking, insurance companies, registered investment advisors, and public companies. There is also an exemption for large, usually operating companies. They don't have to be operating companies, but any company that has 20 or more employees and gross sales or receipts of $5 million or more, and that is a gross receipts number, not a profits number. Potentially very relevant for family offices who often try and zero out their profits. So, from our experience, with the exception of private trust companies, which we will talk specifically about later, I think most entities within the family office structure are likely to be reporting companies. They probably will not qualify for an exemption.
Bill Kambas
David, I'm going to expand on that briefly, if you don't mind. The large operating company, quote unquote operating is a very important one. And I've been suggesting that clients look at their last few years of tax returns and the regulations actually anticipate, that these companies will have had a US office and will be filing tax returns. And you'll look at that gross receipt number on the tax returns, I think for the last five years. So really what they're looking for, what FinCEN seems to be saying is if you are already regulated or doing the compliance necessary for robust operating companies in the US, and in the US is actually an important point on a company-by-company basis, then FinCEN says, all right, we know enough about you. We don't need the beneficial owner information. It's all the SPVS and the JV vehicles that our families and our clients tend to establish that get caught in.
David Guin
Bill did make a good point. The large company exception would not work for a foreign company that is seeking authority to do business in the US. Those have to be US-based employees and they have to be operating from the US in order to qualify for the large company exception.
Dr. Kirby Rosplock
So, let's back it up a minute. And how does the CTA define beneficial owners, and what does that look like for company applicants?
David Guin
Sure. So, a beneficial owner is defined as anyone who exercises substantial control over the reporting company or has a 25% or more ownership interest in the company. So, I'll go into this. I'm going to do the ownership interest first because that's a little bit easier to quantify. So, an ownership interest takes into account both voting and economics. So, if you have the ability to vote 25% or more of the total voting power of an entity, whether that's shares of stock, LLC interest partnership interest, if it's 25% or more of the total voting power, then you are caught. But you're also caught if you have the right to 25% or more of the profits or assets. So, for example, you often have partnerships or LLCs that have both voting and non-voting interests. And you could be applying those tests slightly differently depending on what you're looking at. So, it's a pretty broad-based concept. It's also important to understand that the FinCEN, has taken the position that you need to take account of options, warrants, convertible debt, and anything that is convertible into equity. You are to treat them as if they have all been converted, whether or not you need to pay any extra money or not.
David Guin
So, this could become potentially important in a family office context. For example, if you have some type of equity compensation arrangement for your employees, they may have, under certain circumstances, a right to 25% or more of the profits, even though you wouldn't consider them to be an owner of the company. So, they may get pulled in any way.
Bill Kambas
David, that raises a good point that I'll just expand on. I hope I wasn't just you getting to what you were about to get to, but profits, interest, right? This is another thing that comes up quite a lot in the family office context or in those JVs, and you're going to count a profits interest allocation as part of that ownership percentage. And we also see I have stumbled on this a little bit as I'm looking at some of the family structures I work with. Those options to acquire become relevant, because in some cases, I'm thinking of one in particular. There were some sensitive interest holders in the family, and they wanted options to acquire aspects of the structure, not thinking that they needed any ownership immediately, but created an option, and we helped draft them. And those now all of a sudden are implicated by the CTA.
David Guin
Right. And with respect to profits, interests, and options, and things like that, it's also important to note you should treat everything as if it's vested. So, things that are subject to vesting are treated as if they're outstanding as of today. So, it's not just as simple as looking at your cap table. So, you're going to be taking into account people who might not show up on the company's cap table as you would traditionally think of it.
Ivan Sacks
I think one point that's worth interjecting here to bear in mind is because there's no particular cost other than the advisory costs to filing and being overbroad in filing, who are beneficial owners and substantial controllers. And so, the tendency of advisors is going to want to interpret these issues as broadly as might be in this new and somewhat ambiguous situation, treating everything as vested, treating all possible beneficial interests. And when we get to substantial control, what that means, which also involves a lot of interpretive issues. But this year, people are going to have to file for the first time, the company applicants with respect to this, but after this and for new formations, they're going to have to file within 30 days. And once you encapsulate all the potential people that you have to report, if there's any change in who those people are, you have to report it within 30 days. So, let's say you have chosen not to report somebody with an unvested option or something. That was an ambiguous question, and then they exercise it, or there's a death in the family that changes who the beneficial ownership attribution might go to.
Ivan Sacks
All of those types of changes are going to require a new filing. So, there's a tension between the issue of saying, well, let's be safe and report everybody, which I think is going to be the base case, and we're going to do that. But on the other hand, then vigilance with respect to reporting changes in such a broad group is going to be a challenge for private capital and for the advisors to private.
Dr. Kirby Rosplock
Well, let me ask a question to that end, Ivan. So the company applicant is the person who's actually filing. Right. The document.
Ivan Sacks
It's the company. The company actually bears the obligation. Yeah.
Dr. Kirby Rosplock
And yet advisors could potentially file on behalf of. So, it does sort of create an interesting question of who files the first time around, who's responsible to amend or update a filing, particularly if I'm a family office employee and maybe I do the first filing, but something's changed. Is it up to the family member or is it back on the advisor who's first filing? So, give me a little clarity on that company applicant responsibility.
Ivan Sacks
Sure. Well, technically it is the company that is the reporting person and they have the obligation. I mean, they can say that information is unavailable when they can't get it in terms of how this form gets filled out. But by and large, they're going to succeed in obtaining the information that they need to have to make these filings because these are closely held companies that are subject to these rules. And when there are changes, it is that company applicant that's going to be responsible for the filing. Of course, yes, they're going to have a range of advisors to help them with that. The advisory world, though, is being very cautious about this because this is not typical folks that do tax compliance. This is not actually a tax filing. So, your accounting firm that might be generally useful in filing or seeking to file tax reports for you is not necessarily embracing the responsibility to do this. And lawyers and other professionals, fiduciaries will all have to be cautious about whether we're going to know the information to take on the duty to keep people up to date. So, a lot of advisors are disclaiming and their risk management departments are talking to them about how to disclaim responsibility for maintaining these unless they're informed by the company applicants that there's been a change for them to provide that.
Ivan Sacks
So yes, we will function, and firms like ourselves are going to embrace being a good source of advice to clients, but we are going to have to be careful about engendering some sense of safety that will keep you up to date unless the client is informing us of any change that's relevant.
Bill Kambas
I'd like to expand on that briefly. I agree with what Ivan has said. The management of the reporting company is ultimately responsible for making that filing. So, we need to really take our lead from managers and those in positions of control. This gets to the substantial control notes that I'm sure David's going to expand on in a moment. But I think of it a little bit like having appropriate internal controls for each reporting company. And a lot of times a family office or a family fiduciary, maybe somebody in the private trust company is looking at this as part of the annual audit process for those entities. It's certainly a best practice to do an annual review of the activity, and that could be administrative, it could be cash flow coming in, cash flow going out, or investment due diligence. Much of this happens on a regular basis and a lot more frequently than annually. But annually one should look at, if not more frequently. Is our beneficial ownership correct? FinCEN does contemplate that while you have a 30-day limit to get corrected forms in. It's 30 days from when you become aware of it.
Bill Kambas
So, a manager reasonably could suggest that they didn't know that the intervening entity that had three owners changed one of their owners and implicates the FinCEN filing. So, upon finding out, they need to make that correction. But I do think of it like internal controls. I mean, in the corporate world, we have Sarbanes-Oxley and a responsibility of management to know what's going on. And this is similar to that.
Dr. Kirby Rosplock
David, back to you. I know you mentioned earlier this is having a huge impact, right? With such a huge number of businesses being required. Tell us more about that impact, but also tell us more about the deadlines that we need to be aware of.
David Guin
Before we go into that. I just want to go back. We missed one prong of beneficial ownership, which is the substantial control. And I must say that having thought about this, this strikes me as a perfect regulatory definition because it gives them the ability to look back and say, that anyone who they want to say was a substantial controller, was in fact a substantial controller. It's a super broad definition. So, anyone who has the ability to appoint officers, who has the ability to appoint a majority of the board of directors or similar body, people who have the ability to make important corporate or business decisions, it is really broad, and it takes into account all types of special rights. So certainly in the family office and family business context, we see often very complicated structures where, for example, we may not want, for tax or other reasons, to make the family members the managers of an entity, but we want them to be able to influence. So we give them a bunch of member retained rights. Those member-retained rights may be sufficient to create them as substantial controllers under the CTA. So it's really important that you not just look at who sits in what role within the entity, but you need to dig into the documents themselves and look at all the special approval and consent rights and veto rights and things like that, and assess whether that creates substantial control for CTA purposes.
David Guin
And I think it's safe to assume, having sort of read the adopting release, FinCEN is very aware that people find their definition overly broad. And they said that's what we intended it to. So it wasn't a mistake.
Bill Kambas
The use of that word. I'll just get an underscore, a point that David made, so that all the listeners appreciate this substantial influence over major decisions is the words, I believe, that FinCEN used. Which influence? I mean, how do we interpret that? Talk about ambiguous or a little bit concerning. Certainly, we need to take a close look at the structures that we have in place, and what we're recommending is that one memorialize the conclusions that they're coming to when they're involved with complex control structures.
David Guin
Just one last point. This may be slightly more relevant to international families and US families because we see it more often in the international context. But the CTA is specifically designed to look through nominee arrangements. So if you're holding as a nominee for somebody else, they're going to want you to look through that nominee arrangement to get to the person you're holding it on behalf of.
Dr. Kirby Rosplock
Yeah. So it sounds like this can be very overreaching and very nuanced. I want to jump forward to that question that I had about timing and filing. I know we're talking about 32.6 million entities. Right. Having to file. So you don't necessarily want to wait till the last moment to file. But do you want to file too early? Is there a good timing? Maybe give us more insights on the filing deadlines?
David Guin
Sure. So any entity that was formed prior to January 2024 has until January 1st of 2025 to file their application. Entities that are formed during 2024, so January 1 2024 to January 1 2025 have 90 days to file their initial report. But starting in January of 2025, you'll only have 30 days. So you raise a good point for entities that are in existence already. When do we want to file? I think our general view is you should definitely get started now doing the background work to assess which companies are going to be reporting companies, which ones might be exempt, and who are the beneficial owners. But you may want to wait a little while before you actually make the filing. These are almost brand-new regulations. There are still some open questions as to interpretation. We certainly have some questions into FinCEN ourselves, asking them to clarify things that we think are unclear in regs. So you shouldn't wait to start the process, but you may want to wait a little while to file to that point.
Bill Kambas
I've been talking to clients about a three-part process. I think it's worth sharing. One is the analysis that David's mentioned. Figure out how many entities even exist. In some cases, you lose touch with entities, right. They sort of are out there. They're active, they still hold an asset. So they're not dormant. There is an exemption for certain dormant entities, but it's very limited and they would be a reporting company. So get that list going. Think about who is and anticipate the beneficial ownership, who owns more than 25%, who controls that entity, including the influencing substantial decision. From there, we do have the form like you can print out the form and begin to populate it. That may expose new questions or lead you to a conclusion that may not be a great conclusion that would want to be addressed and then hold off on phase three or the third step, which is the actual filing. But understanding the scope, understanding who would be reported, how that report would look, is all stuff that people can start doing now in anticipation of the filing and then wait for new rules. I do think that new rules will come out. We certainly should get more frequently asked questions or answers to frequently asked questions that FinCEN will be posting and we will wait to see a little bit, but do be prepared
David Guin
One other exercise, I think a lot of our family offices or certainly one of our family offices already talking to me about it is not just looking at their own structure, but saying, okay, my family members are involved in a lot of different things. What exposure do I think they have outside of the family office structure? Whose reports are they going to show up in? And it's not necessarily something they can control, but it's something they want to start to get their heads around.
Dr. Kirby Rosplock
Tell us a little bit, about what goes into this beneficial owner report. What's included? What data is FinCEN looking for?
David Guin
Okay, so there's sort of two sets of information. There's information about the company itself and the information about the beneficial owners and the company applicant. The information about the company itself is their legal name, their trade name, and any doing business as name. They may be using, the street address of their principal place of business and a tax ID number. So that's the reporting company information. With respect to beneficial owners and company applicants, you need to have the legal name, the date of birth, a residential or business address, and an identifying number such as you could get off of a passport or driver's license, and then an actual image of the document from which you took your identifying number.
Dr. Kirby Rosplock
So it's not an onerous amount of information, but if you had 20, 5100 entities, then make sure it all lines up and that you're getting all those EIN or tax ID numbers correct.
Bill Kambas
Managing that information also presents an opportunity that people should be thinking about now. And that is FinCEN has allowed each person who could be reported to obtain a FinCEN identifier. So that information that you've just been discussing can actually be submitted directly to FinCEN by the individual who has that information and received back a FinCEN identifier, which can then be used for all the filings where they would need to be reported. So you're not providing personal information across the Internet and to multiple different people. I think that's a really good recommendation and something that every client, myself, and all of us should be considering. This also has a little bit of an international angle, too, because the transmission of personal information is protected by a lot of countries' privacy protection rules. And so we want to take that very seriously as well as we always do for our clients, but especially when we're transferring information back and forth. All the more reason why I'm recommending that people get FinCEN identifier because I'd rather not have everybody's personal information and I'd like to keep it as protected as possible.
Dr. Kirby Rosplock
That's great.
Ivan Sacks
That also goes to another category which we haven't really talked about much, Kirby, but the advisors themselves. One way in which we're going to end up being having to report is, of course, if we're the manager of a company or the trustee of a trust or protector that has substantial control over a company that has to report. So you might get reported that way, but the other area is when you are applying for forming the company on behalf of the individual. And in that case, one of the things that happened during the comment period was a lot of comments begging for those people that do the applying not to have to be reported on the existing $30 million companies. Because going back and finding the paralegal or the lawyer who filed company papers years ago could have been a nightmare. But it is a fact for new formations. So if listeners are the lawyer or the paralegal or the person in the office that often is asked to file the formation documents with state regulators, you're going to also need to be reported. And that's something that we're recommending for advisors, that they get the FinCEN identifier.
Ivan Sacks
You do it once, you're going to have to be reported 100 times. So get the FinCEN identifier and not have to go through the exercise of providing your Social Security number and your ID and all that every time, that's going to be useful.
Dr. Kirby Rosplock
Great feedback. So I know we talked about the change of information and the need to update. So you could update your FinCEN identifier, probably just like you could update your filing. Correct. So you're going to want to sort of think about a yes. And is that correct?
David Guin
Yeah. There are the privacy benefits of the fence and identifier. There's also an administrative ease benefit. So we can envision a family office where family members or employees of the family office are beneficial owners either because they own or have substantial control over numerous entities if there's a change in the information about that beneficial owner. If you've used FinCen identifiers, you only need to go in and update the FinCEN identifier filing. You don't have to amend every single company filing. It will pull itself through. So there's a big administrative benefit to using the FinCEN identifiers in addition to the privacy benefit.
Ivan Sacks
Yeah, because one of the reporting items is a change of address.
David Guin
Right.
Ivan Sacks
Imagine that you've done this for 100 companies and then you move. You definitely would want the FinCen identifier to be the only thing you have to update.
Dr. Kirby Rosplock
Yeah, that's great. Now, where does this information reside? I mean, after you file with the CTA, how can it be accessed outside of know submission and who holds on to that?
Ivan Sacks
It'll be filed with and it is stored in a private FinCen database which is not publicly accessible under the CTA rules. There are four categories of people who can get their hands on this information. So federal law enforcement agencies can get the information without special rights and privileges. State and local law enforcement agencies can get it if it's authorized by a court order. Federal agencies can obtain it on behalf of foreign governments or foreign entities, foreign agencies if it is pursuant to an international agreement. And then financial institutions can get it, but only with the consent of the reporting company. So we envision a couple of things. One, we envision this will quickly become part of a bank's KYC processes. And there are lots of ways in which the federal government is sort of deputizing private sector actors to help them with enforcement. And we think this will be one of those cases when the banks are going through and doing their KYC. We think they're going to ask for this, and if people don't have it, they're going to tell them they got to go file.
Dr. Kirby Rosplock
Well, let's say you don't file. Are there steep penalties if you miss the deadline or you just say, I'm not filing?
David Guin
Yeah. So there are civil penalties of up to $500 per day for each day you are not in compliance. And there are criminal penalties up to a cap of $10,000 and up to two years in prison. Want to make a point that we've made in different contexts? These are penalties for non-compliance. The obligation to comply is on the reporting company, not the beneficial owners or the advisors. So they aren't going to go to jail or get fined. It would be the reporting company itself that would get fined for the non-compliance.
Dr. Kirby Rosplock
Got it. Does anyone get any free pass? Sorry, go ahead, Bill.
Bill Kambas
No, I was just going to expand on that because it's been pointed out to me that there are whistleblower rewards for exposing those who don't comply in a one off circumstance. Maybe that's not a huge risk, but I'm always thinking about family structures, and in robust or complex families with real estate ventures, for example, where you're really setting up a lot of different entities for different purposes, you may have a lot of entities, and the penalties, for example, and the rewards for whistleblowing are on an end by end basis. So FinCEN was acutely aware that there are actually two domestic and one potentially international whistleblowing statute that could come into play here. All know when I look at a family office or a private trust company, I've got a risk management lens on what are the risks that this family office is protecting the family from. What's knowable and what's quantifiable? And this is one that is therefore knowable. To be sure that everything is compliant just to avoid any circumstance where somebody might want to come forward and say, I don't think that those guys have been doing it right.
David Guin
We certainly represent a lot of families, and all the advisors here who might be listening to would probably be the same boat that are sort of high profile. And this is just another way that someone can point the finger of non-compliance at someone who's high profile. So just be careful of it. There's a potential reputational aspect to it as well.
Dr. Kirby Rosplock
And is there a special consideration for the application of the CTA to family offices, or is there nothing?
David Guin
Specific to family offices? So in our experience, we think most of our family offices, the office itself, and probably the entities it owns and controls are likely to all be reporting companies with the exception. And Bill and I will talk about this a little bit. Private trust companies within a structure may create some reporting benefits, I guess. And we do have a few family offices that are either structured as registered investment advisors or that have affiliated registered investment advisors. And in those cases, they may be able to take advantage of the exceptions that are available to registered investment advisors and the pooled investment vehicles that they manage. But generally speaking, we think that there's no specific exemption for family offices. And clearly, as I think we've all tried to point out, no exception for closely held entities. That's exactly what these were supposed to be getting at.
Ivan Sacks
The bigger family offices, though, if you have more than 20 employees of the US or more than 5 million of revenue. And I guess that's interesting because that implicates strategy potentially. Not that you would wag the whole dog for this purpose, but whether your family office entity is the general partner of family funds and is structured that way, to what extent you consolidate structures in ways that generate, might generate a $5 million revenue number from having service level agreements between family entities in order to run cash flow and expenses. So it is possible, obviously, for some larger family offices to generate.
Dr. Kirby Rosplock
I mean, does this pretty much cover, do you think, the CTA, or is there more stuff unfolding, or are there more things that might be coming up about the CTA and its implications?
David Guin
So, as a couple of us have alluded to, we expect there to be potential enhancements to the rules and new guidance put out. So, I think there's still more to come. The other point I want to make, and it's beyond the scope of this webinar, but I want to make sure people are aware of it. There are a number of states that have either enacted or considering enacting their own version of the CTA. New York, for example, has enacted the New York LLC Transparency Act. So, keep your eye out. There may not just be a federal thing, it may be a state thing as well.
Ivan Sacks
The other point that I would just like to add her before all of us trusted estate lawyers and advisors, is that everybody did breathe a sigh of relief that trusts were not considered. They're not registered entities, they are not themselves reporting first. On the other hand, because this issue of substantial control over companies implicates so many trusts that own LLCs, own interests, and limited partnerships, etcetera. Therefore, that requires us to look up to the person or persons who control the trust to be reported as the controllers of the companies. And that gets us simple cases where it's a revocable grant door trust, the patriarch, he's the reporting person. We can revoke everything in the trust and maybe he's the sole trustee. But then when you get into irrevocable trusts with much more complexity in terms of protectors, directed trusts with investment advisor, distribution advisor, all of the pointers committees, all of that kind of stuff is going to create interpretive issues as to that. Which is why the first year is going to be an important year for people to get the right analysis as to who they have to report. And then I think to some extent that will influence strategy a little bit as well in terms of in the future, how many people do we want to have to report on every time they change their address or somebody steps on or off the board of directors?
Bill Kambas
You got to be vigilant. That's the other thing from my point of view, and I'll expand on that just briefly. But absolutely, I think what you're hearing and what we're all agreeing with is that we will get more information. We are hoping for more information. We're really looking at anybody with the right or authority to dispose of assets. Dispose of trust assets. And what does that really mean in this context? In trusts, for example, is the power to remove or replace a trustee or a protector, a substantial power, because it can influence the officers or the boards of those underlying companies? These are the things we're exploring now, and we're hoping that FinCEN will give us a little bit more guidance on. Also we are looking at, and I think that we're going to continue this year and going forward to see how broadly the subsidiary exception was intended to be applied. That's a really big one. So, in the private trust company context, similar to what David said earlier about the family offices, but private trust companies can either be regulated or unregulated. If they are regulated private family trust companies, then they're regulated by the State Banking Commission, which is a regulated bank and would likely come under the exception. It's a three-part analysis. The FDIC, the 1940 Investment Advisors Act, and the 1940 Investment Company. The Investment Advisors Act and the Investment Company Act both say, performing fiduciary services and are overseen by a state or federal regulator. So those are coming in now.
Bill Kambas
What about that private trust company that serves a series of family trusts that have a whole series of entities underneath managing the family investments, and it starts to get a little murky there. We think that we see some lines through, but we also see areas where those lines are not so clear, and we're going to be paying a lot of attention to that. But the application of the subsidiary exception is going to be a big one for us.
Dr. Kirby Rosplock
So we've talked about family offices. Is there anything further on the family office front we want to dig into?
Bill Kambas
I would look at individuals only to say that it's the entity we talked about. We did talk a lot about individuals, but in some cases, family office individuals are also receiving appointments for management on boards or as officers of underlying entities. So, in some cases, and we focused on the entity itself being appointed in positions, but sometimes it's individuals themselves, and we'll want to think about it both ways.
Dr. Kirby Rosplock
Anything else we want to expand on the private trust company front or do you feel like we kind of covered that?
Bill Kambas
Bill, I'll start off by saying I think we covered it, but I don't want to forget Ivan's comments on directed trusts, trust advisors, and the other powers that we sometimes embed because that also gets embedded in the PTC side.
Dr. Kirby Rosplock
And then maybe let's come back to this advisor because I still feel like, are they pointing fingers at you file, you file? No, the manager files. So where would you want to sit in being really on top of this proactive advisor if you're connected to one or more of these kinds of ownership structures?
Ivan Sacks
Well, you want to be on it now in terms of informing your clients that this is for real. It's here. It took two years or more, the comments and all of that. In some ways people, those who have heard of it, may have heard of it for a long time and been a little bit lulled. Know now it's here. And although we're advising, as David said, don't be the first person to file this form. While some things are still big releases are occurring, I do think that it's going to be a terrible rush at the end of this year for so many of these preexisting companies. And then don't be fooled by the fact that the headline is about all the existing companies having to file by the end of the year, because if you're forming something new today, you've got 90 days to get that report in now. And in the future we'll do 30. So, people do have to be informed about this.
Dr. Kirby Rosplock
About this and do we want to go around and just any closing thoughts or anything that you want to put a point on that we've either covered or that you're interested about what's coming down the pike for the CTA. David, do you want us to kick us off?
David Guin
I think from my perspective, the biggest point is sort of the breadth of the concept of substantial control and the need to potentially some organizational documents are going to be pretty simple. It'll be fairly simple to figure out. But because we see so many complex management structures in family offices and family businesses that try and take account of competing interests, the interests of the family versus the interests of the executives, the interests of involved family members versus noninvolved family members, there's just a lot of detail in those and it's going to require some careful analysis.
Bill Kambas
I'll expand on that. Again, coming back to the fiduciary and private trust company perspective, I think advisors should be ready to review trust instruments and fiduciary structures. We've seen a lot of different types of trusts with different powers. I mentioned remove and replace powers, but swap powers, powers of appointment, all beg the question of the ability to dispose of assets or influence important decisions for the reporting companies. And I think that advisors need to be prepared to receive questions along those lines and think about how to answer them and what the result is going to be for the FinCEN CTA file the form.
Ivan Sacks
Yes, I agree with that. And even in typical entities, family limited partnerships, everybody thinks that it's simple that so and so, or the board of so and so are the general partner of that partnership. But as David mentioned, what if the limited partners have the control over the dissolution of the entity for certain extraordinary acts? Where's the line on who has to be reported? So this is not going to just be a data dump. Know obvious proportions until people do the right analysis.
Bill Kambas
And I think I'll just expose. Sorry, Kirby, but Ivan's point shows why the legal aspect of these rules and the role of the legal advisor. Those who are equipped to review legal documents and understand legal structures is going to be so important.
Dr. Kirby Rosplock
So I'm hearing, don't leave it to the last minute. Make sure you're doing your homework, doing the analysis and due diligence to know the complexity. And maybe there is some work. What happens? We didn't talk about this, but what happens if you get flagged by finsan and maybe they don't like what you submitted? Have you already seen instances of that and are they giving you time to cure or to fix? What happens then?
Bill Kambas
Luckily, we haven't seen any instances yet that I'm aware of. And David and I serve on our firm's CTA committee as well, so we haven't heard of anything like that. Luckily.
Dr. Kirby Rosplock
Okay. Okay. Well, things to come.
Ivan Sacks
So few people have filed that there's no chance of that yet.
Bill Kambas
But memorializing decisions, I think, Kirby, what you're getting to is know what you're reporting. Memorialize how you got to that conclusion and be prepared to defend it. Don't just guess.
Dr. Kirby Rosplock
Great words of wisdom to close this out. Well, thank you, gentlemen. It's always a pleasure. So much wonderful information was shared on this webinar. Additionally, you've been gracious enough to give us a link to further information that Withers has on the CTA. So that will be connected to the end of this webinar as well, along with the contact information for David, Bill and Ivan, who I am sure would be happy to help your family office your private trust company, you, advisors who are working with all kinds of enterprising individuals and families. So, a really helpful informational webinar on the Corporate Transparency Act. Thank you again.
David Guin
Thank you.
Bill Kambas
Thank you.
Ivan Sacks
Thanks.
