The Corporate Transparency Act (CTA), which goes into effect January 1, 2024, will affect businesses across all industries, including many real estate investment and holding companies. As the CTA is just now coming into effect, what kind of long-term positive or negative impacts will it bring? My thoughts heading into enactment include:

Potential Negatives

• Seeming Loss of Anonymity and Effect on Potential Investors: The CTA is construed by some as removing the anonymity from real property investments. The reality is beneficial ownership information will not be publicly available, and investors should have the same shield of anonymity that has always been present. However, I imagine some investors, due to either misinformation or a principled opposition to increased reporting requirements, may walk away from deals. The requirement for individuals to provide current government documentation to the online reporting portal may be another burden scaring scam-wary (or weary) investors.
• Administrative Burden: In addition to annual tax filings, registrations, and renewals of registrations with secretaries of state and localities, securities filings and other ordinary course reporting obligations entities will now have to file an additional report on a new platform to comply with the CTA (together with updates as beneficial owners change). For entities with multiple subsidiaries, affiliates, and joint ventures, the administrative hassle is compounded.

Potential Positives

• Credibility in Compliance: Companies that are able to comply with the CTA and demonstrate the same to investors show that they are “real businesses.” A holding company that shows prowess in dealing with administrative compliance (particularly new regulations such as the CTA) adds credibility as a well-run entity.
• Gain of Potential Investors: Some investors may appreciate the transparency – even though these reports aren’t public, the thought that there is an additional level of oversight on the company’s operations may bring comfort to some investors.
• Anti-Money Laundering: Assuming the CTA has its intended effect, money laundering through real estate holding companies should be reduced. Companies and investors may see this as a greater good justifying some of the administrative pains.

My speculations aside, it will be interesting to see how the CTA plays out and whether the shift will affect the real estate investment market. At a minimum, it will be an administrative hurdle.