Effective January 1, 2024, the Corporate Transparency Act (CTA) will usher in crucial reporting obligations on beneficial ownership for both new and existing companies. This legislation will significantly impact due diligence processes for mergers and acquisitions (M&A) and the internal formation of new entities. Of particular significance are the implications for renewable energy project developers, energy transition private equity funds, and sustainable infrastructure funds, given the intricate corporate structures often found in the renewable energy sector.
Renewable energy developers commonly manage complex corporate hierarchies involving holding companies and project entities, often segmented across various technologies such as solar, wind, and storage. With each renewable energy project having its distinct project company, intermediate entities, and an overarching parent company, compliance with the CTA becomes a multifaceted task. It is essential to note that the CTA does not allow a single parent company to submit a consolidated filing covering all subsidiaries. Instead, each entity necessitates its independent beneficial ownership analysis and a distinct CTA filing.
Key Takeaways:
The CTA mandates beneficial ownership reporting starting January 1, 2024, applicable to both new and existing companies.
A single filing covering all subsidiaries is not permissible under the CTA, requiring each entity to undergo separate beneficial ownership analysis and filing.
The CTA imposes new diligence and process considerations for M&A transactions, necessitating buyers and sellers to address pre- and post-closing implications of CTA reporting obligations.
Developers and sponsors with intricate corporate structures must swiftly identify relevant exemptions and beneficial owners for each reporting company.
Companies formed through documentation in any U.S. jurisdiction or non-U.S. entities registered to operate in a U.S. jurisdiction, falling outside the 23 exemptions, must report company and beneficial owner information to the U.S. Department of Treasury’s Financial Crimes Enforcement Network. Although this data remains non-public, certain governmental authorities can access it. For reporting companies established before January 1, 2024, the initial report is due by January 1, 2025. For those formed after this date, the initial report must be filed within 90 days of formation, reducing to 30 days starting January 1, 2025. Updated reports are mandatory within 30 days of any changes to reported information.