On the Forefront of Corporate Transparency

Delaware remains one of the top states to do business

BY KRISTOPHER KNIGHT

FOR MORE THAN A CENTURY, Delaware has built and maintained a robust corporate ecosystem driven by its General Corporation Law, highly respected Court of Chancery, unparalleled expertise from the corporate and legal services community, and exceptional service from the Division of Corporations to attract and retain corporations. With more than two million business entities incorporated in the state, including multinational corporations, public companies, privately owned entities, small businesses, and over two-thirds of the Fortune 500, Delaware’s corporate franchise is more diverse than ever.

As the premier state of formation for business entities, Delaware has taken important steps to enhance oversight of the company formation process and increase corporate transparency. Secretary of State Jeff Bullock has led efforts in the First State to ensure transparency and combat illicit behavior, while minimizing potential undue burdens on the business community.

In recent years, the Delaware Department of State has supported common sense amendments to the state’s business entity laws and a regulatory framework around Customer Due Diligence requirements to support the registered agent community and protect the state from bad actors.

Most recently, Delaware supported congressional efforts to enact the Corporate Transparency Act (CTA) in January 2021 – the culmination of a decade-long effort to increase transparency in U.S. business entity ownership.

The CTA was designed to combat tax fraud, money laundering, and other illicit activities conducted by bad actors around the globe who intend to misuse U.S. business entities. By mandating businesses to disclose their true ownership – their beneficial owners – the CTA aims to close loopholes utilized by malicious actors to exploit the U.S. financial system.

In 2018 and 2019, Secretary of State Jeff Bullock played an instrumental role in beneficial ownership negotiations at the House Financial Services and Senate Banking Committees to advocate for a national framework for the collection of beneficial ownership information.

Through meetings with key Members of Congress and the U.S. Department of Treasury, the Delaware Department of State supported efforts to create a beneficial ownership framework that would bolster national security by enhancing coordination between the Treasury Department, law enforcement, and financial institutions, while minimizing the burden on small businesses.

Ultimately, Members of Congress on both sides of the aisle came together to pass a bipartisan solution to address this complex problem. The CTA requires certain business entities to report information about their beneficial ownership, including full legal name, date of birth, current residence or business address, among other information, to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

While beneficial ownership reporting requirements are an important step in the right direction, the work is far from over. Delaware will continue to advocate for more corporate transparency while continuing to meet the needs of the corporate community. To learn more about the Corporate Transparency Act and the beneficial ownership requirements, visit fincen.gov/boi.

Kristopher Knight serves as deputy of secretary of state and the director of the Division of Corporations. To learn more about the Division of Corporations, visit corp.delaware.gov.