In an article for Middle Market Growth, Bass, Berry & Sims attorneys Chris Climo and Katie Smalley examined certain key considerations for middle market owners and private equity (PE) investors related to the new reporting requirements under the Corporate Transparency Act (CTA) – particularly at the intersection of CTA compliance and mergers and acquisitions (M&A).

As detailed in this article, Chris and Katie caution owners and investors as follows: "Carefully determining the availability (or absence) of a CTA exemption, identifying Beneficial Owners of Reporting Companies, adopting internal CTA compliance guidelines, and taking a thoughtful approach to transaction structure and documentation will be necessary steps to ensure compliance." The authors point out that the Large Operating Company and Subsidiary exemptions are expected to be the most commonly available exemptions available to middle-market businesses, however some of the regulatory nuances applicable to those exemptions will need to be very carefully analyzed on an individual basis.

Chris and Katie recommend that middle market participants adopt an internal CTA Compliance Program that focuses on the following key areas:

  • Identifying all Reporting Companies and their Beneficial Owners, ensuring appropriate documentation of any applicable exemptions and/or copies of BOI [Beneficial Owner Information] Report submitted.
  • Including information rights and covenants in any employment contracts for senior officers, any subscription agreements or other equity or governance documents for significant equity holders, and any other contractual arrangements giving an individual any substantial control over a Reporting Company.
  • Ensuring confidentiality and privacy of all Personal Identification Information in accordance with applicable privacy regulations.
  • Adding standard BOI Report updates to acquisition, onboarding, and severance checklists.

The full article, "Seeking Clarity on Corporate Transparency: A Practical Guide to CTA Compliance in M&A," was published by Middle Market Growth on April 1 and is available online.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.