The Corporate Transparency Act (CTA) is a new anti-money laundering regulation. It went into effect on Jan. 1, 2024, and represents a major shift in reporting requirements for small businesses. Staying informed and compliant is an important part of running a business. You can face civil penalties or even criminal penalties if you don’t.
Let’s explore what the CTA entails, who it affects, the information required to stay compliant, key deadlines, and where you can seek assistance for reporting.
What Is the Corporate Transparency Act?
The Corporate Transparency Act was enacted by Congress to combat money laundering, the financing of terrorism, tax fraud and other illicit activities. It aims to do this by shedding light on the true owners of business entities. This will be done by requiring certain businesses to file their ownership information with the U.S. Department of the Treasury.
The CTA requirements are new and will require additional reporting than in the past. It is expected to impact a large number of small businesses.
Who Is Subject to the Corporate Transparency Act?
The Corporate Transparency Act mainly targets smaller, privately held business entities. It applies to corporations, limited liability companies (LLCs) and other businesses created by filing a document with the state or tribal authorities. The CTA also applies to foreign companies that are registered to do business in the United States in a similar manner.
There are a few exempt entities such as publicly traded companies, nonprofits and banks. You can find the full list of exemptions on the FinCEN website.
What Information Must Be Reported?
Reporting companies must provide their beneficial ownership information by filing a BOI report through FinCEN. This can include things such as:
- The full legal name of each beneficial owner.
- The date of birth of each beneficial owner.
- A unique identifying number, such as a passport number or a driver’s license number, for each beneficial owner, and an image of the identifying document.
- The current street address of each beneficial owner.
- Company details such as the legal name and any trade names or DBAs.
- The current U.S. business address.
- The business’s Tax Identification Number (TIN) or similar identification number.
A beneficial owner is not just anyone with a financial stake in the company. The Financial Crimes Enforcement Network (FinCEN) describes beneficial owners as individuals who exercise substantial control over the reporting company, or who own or control at least 25% of the ownership interests of a reporting company.
There may be additional information you need to report. For example, businesses founded after 2024 may also need to report their company applicants and information about them. You can find more information about what your business may need to report in the Small Entity Compliance Guide from FinCEN.
When Is the Filing Deadline?
The deadline to file under the CTA can depend on when your business was established. Existing entities created before Jan. 1, 2024, will have until Jan. 1, 2025, to file. Companies created in 2024 will have 90 days to file. Businesses founded on or after Jan. 1, 2025, will have 30 days.
Where Can Business Owners Get Help With Reporting?
Navigating new regulations can be confusing. Fortunately there are a few places small business owners can turn to for help.
Professional legal and financial advisors. Seeking advice from a lawyer or accountant who specializes in corporate law and compliance can be invaluable. They can help walk you through the beneficial ownership information reporting process and provide tailored advice to ensure that your business fulfills all its reporting obligations.
Government websites. The U.S. Treasury’s Financial Crimes Enforcement Network provides guidelines and updates on the CTA on their website. You can find a lot of information on the CTA including FAQs and detailed instructions for filing.
From the Experts: What’s the #1 Thing Business Owners Should Know About the Corporate Transparency Act?
“The number one thing business owners need to know about the Corporate Transparency Act (CTA) is that it requires significant disclosure of beneficial ownership information. Specifically, the CTA mandates that certain U.S. companies report the identities of their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.
“Beneficial owners are individuals who ultimately own or control the company, typically those who own 25% or more of the company’s shares or have substantial control over the company’s operations. This regulation is primarily aimed at combating money laundering, terrorist financing, and other illicit financial activities by increasing transparency in the ownership structures of U.S. companies.
“Business owners need to be aware of this requirement as non-compliance can result in significant penalties. They should ensure that they understand whether the CTA applies to their business and, if so, comply with the reporting requirements to avoid legal and financial repercussions.”
Braden Perry, Partner
KennyHertz Perry LLC
Braden Perry, is a corporate governance, regulatory, and government investigations attorney with Kansas City-based Kennyhertz Perry, LLC. Mr. Perry has the unique tripartite experience of a white-collar criminal defense and government compliance, investigations attorney at a national law firm; a senior enforcement attorney at a federal regulatory agency; and the Chief Compliance Officer of a global financial institution.
“The Corporate Transparency Act requires certain U.S. businesses to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This act aims to prevent and combat the use of shell companies for illicit activities. The primary thing business owners need to know is whether or not their entity is required to file a Beneficial Ownership Information (BOI) report. A domestic or foreign reporting company is any entity that is a corporation, a limited liability company (LLC), or any company created by filing a document with a secretary of state or any similar office under the laws of a State, Indian tribe or under the laws of a foreign country. While there are certain reporting exceptions (inactive entities, tax-exempt entities, large-operating companies), most corporations, LLCs (including single-member LLCs), and partnerships filed with a secretary of state will have a filing requirement.
“Compliance is essential as willful failure to report accurate information can result in penalties. Business owners should understand if their business falls under the act’s requirements and prepare to disclose the necessary information. Be advised An entity (and/or its owners) may be subject to a civil fine of up to $500 for each day the CTA report remains unfiled. Criminal penalties can also be imposed (including a $10,000 fine, imprisonment up to two years, or both).”
Zachary Hellman, Owner
Tax Prep Tech
Zachary Hellman is an Enrolled Agent and the owner of Tax Prep Tech, a small accounting firm in Los Angeles that focuses on providing individuals and small businesses with tax preparation and advisory services, ensuring clients navigate the complexities of the tax code with ease and confidence.
“The number one thing to know is that the Corporate Transparency Act allows up to a year to comply with the reporting requirements if a company was formed before January 1, 2024. This can provide a company runway to figure out how it wants to approach the reporting (allocated in-house time or hire outside services), it will also allow companies to tidy up and dissolve any non-operational companies.”
Eric Proos, Owner
Eric Proos is a private practice attorney in Beverly Hills, California, and owner of EJP Law. He represents companies of various sizes from formation to fractional general counsel services.
DISCLAIMER: This content is for informational purposes only, and is not intended as legal or other professional advice.
This content is for educational and informational purposes only, and is not intended as financial, investment or legal advice.