The Corporate Transparency Act: Implications for Community Associations

The Corporate Transparency Act: Implications for Community Associations

Author:  Luis Alicea, Director of Community Association Banking

Often a beacon of luxury and communal living, community associations range from towering high rises to meticulously manicured homeowner associations. They play an important role in maintaining a neighborhood’s well-being by facilitating participation in decision-making and fostering a sense shared responsibility among members. These communities, however, are now navigating new federal reporting mandates designed to thwart financial crimes.

Under the Corporate Transparency Act, which took effect on Jan. 1, 2024, corporations and limited liability companies—encompassing many community associations—are mandated to report their beneficial owners' details to the Financial Crimes Enforcement Administration (FinCEN). This significant overhaul in transparency regulations presents a crucial opportunity to examine the impact on the community associations across the country.

Corporate Transparency Act Explained

At its core, the Corporate Transparency Act seeks to pierce the veil that hides corporate ownership. Under the Act, organizations must provide details of any beneficial owner who has a significant controlling interest – defined as one who owns or controls at least 25% of the ownership interests or who exercises substantial control over the company.

Required information includes full legal name, date of birth, address, a unique identification number for each beneficiary—such as U.S. driver’s license or passport—and a photo of the document with the individual’s identification number. The disclosures are intended to prevent illegal activities by revealing the people who actually benefit from the company's operations.

Impact on Community Associations

Community Associations now must compile and file a comprehensive report on their leadership. Communities structured as not-for-profit corporations are subject to the requirements of the Corporate Transparency Act, which generally requires the disclosure of information about directors, officers and others with significant control or rights. This may include a large portion of community associations that operate as homeowner associations, condominiums and cooperatives. 

The broad language of the law creates questions about exactly which organizations the act covers. Without clarity, community associations may want to err on the side of caution, despite potential for exceptions.

Strong incentives to comply with the Corporate Transparency Act come in the form of fines of hundreds of dollars per day for each violation and severe penalties of up to two years in prison for failure to report. With such dire consequences, corporations must prioritize timely and accurate beneficial ownership disclosure. Even an innocent reporting error can lead to costly consequences.

Community associations must shoulder expanded transparency regulations that promise challenges alongside opportunities for legal clarification and possible exemptions. By understanding and fulfilling the obligations under the Corporate Transparency Act with the assistance of the association attorney, communities can adapt to this new era of heightened oversight.

The information in this article does not constitute legal advice, and I recommend consulting with an attorney to discuss your specific situation.

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About the Author

Luis collaborates with community, homeowners and condominium associations, as well as community association management companies, to support capital and funding needs. He understands that every organization has different financial goals and builds deep relationships with his clients to offer the right solutions at the right time.