Corporate transparency is increasingly becoming a requirement for modern businesses. Today, every legal business entity regardless of its classification, size, ownership, and success is subject to at least one compliance regulation. These regulations may include annual reporting requirements or other state or federal regulations. The purpose of these rules and regulations is to ensure that businesses operate in accordance with the law and can maintain their legal status.
As the world changes, there is a strong business case for corporate transparency around governance and anti-corruption. In 2021, the Corporate Transparency Act (CTA), a new regulation with the intent of preventing corrupt actors, terrorists, and criminals from laundering money in the United States, was announced. As organizations wait for the CTA’s January 1, 2024 effective date, the broader topic of corporate transparency has become a new focus. What is corporate transparency? How does it impact legal entities? What are the benefits?
Read ahead to learn about corporate transparency and how your organization can adopt transparency to more effectively navigate the evolving compliance landscape.
What Is Corporate Transparency?
Corporate transparency is when a company openly shares information with individuals, teams, the entire company, or even the public. Whether meeting government regulations or updating stakeholders on revenue and other important information, businesses must disclose their actions to someone outside of the organization.
Transparency can look different depending on what the organization is required or chooses to share. Common factors that companies consider when seeking to increase transparency include:
- Growth and performance
- Internal processes
- Revenue
- Hiring practices
Essentially, corporate transparency is all about openness. And while 55% of business owners describe their organization as “very transparent”, only 18% of employees agree.
What Are the Benefits of Corporate Transparency for Legal Entities?
For legal entities, complying with the CTA may seem like extra work. But transparency has several benefits for the business itself including enhanced trust from employees and improved investor support.
Enhanced trust from employees
Corporate transparency is key for building trust amongst employees. That’s because transparency enables team members to keep a pulse on happenings within the organization and empowers them to contribute to critical conversations.
Especially in the midst of The Great Resignation when hiring and attracting talent is increasingly difficult, companies that prioritize corporate transparency are reaping the benefits. Today, employees want to work for companies that are committed to creating good cultures and are transparent about company values and operations. In fact, nearly 90% of workers desire transparency at their next job. Employees’ desires to work for a transparent company varies in reasoning. For some, it’s about the ability to understand what and how decisions are made within the company. For others, transparency is a way to boost their competitive awareness, learn about industry trends, or gain more internal knowledge.
Improved investor trust and support
Many investors steer clear of companies that lack transparency in their business operations, financial statements, or strategies (and for good reason). Investors want to make sound investment decisions that are highly likely to yield returns. Without transparency, investors cannot access the information they need to make informed, strategic decisions. For investors, less information means less certainty about a company’s standing and increased risk.
Organizations that exercise corporate transparency are more favorable to investors. In fact, 2/3 of investors cite ‘degree of transparency’ as an important investment consideration. When information is readily available to investors, they can trust and better support an organization.
How Can Legal Entities Exercise Corporate Transparency?
With the enforcement of the new Corporate Transparency Act, organizations may view transparency as another item on the “to-do” list. However, in addition to CTA compliance, there are other opportunities for organizations to exercise transparency:
- Decentralize decision-making and allow employees to have insight into the company’s plans.
- Solicit and encourage employee feedback to assess how the organization is performing.
- Schedule regular company-wide town hall meetings to update the company on important happenings and encourage questions to be asked during the meeting.
Corporate transparency is key in how successful companies maintain good legal standing, engage with their investors, and maintain and attract talent today. As your organization seeks to understand transparency and its impacts on the company, contact EntityKeeper for support. Our team of subject matter experts are happy to provide guidance.
Watch the Planning and Preparing for the Corporate Transparency Act webinar on-demand now.
