Background

If you own, operate, or even are a senior employee at a small business, chances are you will have to comply with the Corporate Transparency Act. Learn more about this new law below:

What is the CTA

The Corporate Transparency Act requires certain business entities to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The goal is to create a centralized database of beneficial ownership information that law enforcement and other authorized entities can access to prevent and combat financial crimes.

FinCEN estimates that more than 33 million entities - including virtually every small business in the country - will have to comply in 2024 alone.

 

Who Must Report

Per the law, entities “created by the filing of a document with a secretary of state or a similar office” must report. That means LLCs, corporations, partnerships, and in some states sole proprietorships, along with other entities unique to various states.

There are 22 exemptions to the requirements, including:

  • Large operating companies with more than 20 full-time employees, more than $5 million in gross receipts or sales, and a physical office in the U.S.

  • Regulated entities such as banks, credit unions, securities issuers, and entities registered with the Securities and Exchange Commission (SEC)

  • Entities already subject to similar federal or state reporting requirements, such as insurance companies and public accounting firms

Penalties for noncompliance include a fine up to $10,000 and up to 2 years jail time. While federal regulators have stated that only instances of willful noncompliance will be prosecuted, you don’t want to take that chance!

 

What Must Be Reported

Entities must report several pieces of information about their beneficial owners, including:

·        Full legal name

·        Date of birth

·        Residential or business street address

·        A unique identifying number from an acceptable identification document (e.g., passport, driver’s license)

 

When to Report

Newly Formed Entities: Must file their beneficial ownership information with FinCEN at the time of formation.

Existing Entities: Those entities created before January 1, 2024 must report before the end of 2024.

Changes in Information: Entities must update their reports within a specified period (usually 30 days) if there are changes to the beneficial ownership information.

 

Why was the CTA enacted?

The CTA was created to:

·        Enhance transparency in corporate structures and ownership

·        Prevent the misuse of shell companies and other entities for illicit purposes such as money laundering, terrorist financing, tax evasion, and corruption

·        Provide law enforcement and other authorities with timely and accurate information to assist in investigations and enforcement actions

·        Align the U.S. with international anti-money laundering and counter-terrorist financing standards

By requiring entities to disclose their beneficial owners, the CTA aims to reduce the anonymity that can facilitate illegal financial activities and strengthen the integrity of the U.S. financial system.