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Corporate Transparency Act: What You Need to Know as a Business Owner

Corporate Transparency Act - Business Owner

Own a Business? Get To Know the Corporate Transparency Act

Business ownership is a fulfilling and exciting endeavor, but it also comes with rules, responsibilities, and reporting requirements that can be hard to track. If you own a small business or have a Trust that owns a business interest, you will need to comply with a new Federal law that creates new regulations for all business in the United States -called the the Corporate Transparency Act (CTA).

Beginning January 1, 2024, the Corporate Transparency Act will require small companies to disclose the names of any owners who hold a 25% or more ownership interest in the company, as well as any individuals who exercise significant control over the company’s activities. This new rule also applies to Trusts that own or control a company.

If you or your family own a business or have a Trust that owns a business, you will be required to file a report under the CTA. If you plan to create a new company in 2024, your reporting deadline could be as soon as 30 days after the date of its creation.

What The Corporate Transparency Act Means for Your Business

The Corporate Transparency Act (CTA) was enacted in 2020 as part of the Anti-Money Laundering Act (AMLA) and was passed by congress in 2021 as part of the National Defense Authorization Act (NDAA) to enhance corporate transparency and prevent money laundering, terrorist financing, and other financial crimes.

By requiring businesses to report information about their owners and controllers, the Act seeks to make it easier to identify “shell” corporations – companies that do not actually perform an active business or trade and which are often used to move money around illegally.

To comply with the CTA, certain businesses including some corporations and LLCs will need to disclose the names of anyone who owns 25% or more of the company and any members of the company who have “substantial control” over the company’s activities to the Financial Crimes Enforcement Network (FinCEN). This includes anyone who owns or controls a company through their Trust.

What Businesses Need to Report Under the CTA?

Under the new rule, “reporting companies” are defined as any company with twenty (20) or fewer employees that is formed by filing paperwork with the Secretary of State or similar office, such as corporations, partnerships, and limited liability companies (LLCs).  

Since money laundering and terrorist financing are usually conducted using small businesses, the CTA largely aims to collect information on these companies, so entrepreneurs and small business owners should take extra care to meet the filing requirements.

Publicly traded companies, non-profits, and regulated companies like financial firms, accounting agencies, and banks are exempt from the rule.  Large companies are also exempt if they have 20 or more full-time employees in the US and generate $5 million in sales.

An LLC or corporation that is not actively performing a business or service is also exempt due to its inactivity.

What Information Does a Business Need to Report Under the CTA?

The CTA requires three categories of information to be reported: company, owners, and applicant.

Domestic reporting companies created before January 1, 2024, must provide information about the company and its beneficial owners.

A beneficial owner is defined in the CTA as an individual who exercises “substantial control” over the reporting company or has an ownership interest of at least 25 percent.  Company senior officers, directors, and others who make significant decisions on behalf of the company may meet this statutory definition of “substantial control,” although the broad definition may cause confusion in some instances.

Domestic reporting companies created on or after January 1, 2024, must provide information about the company, its beneficial owners, and its company applicants.  A company applicant generally is the individual who files the formation document with state authorities for the reporting company.

Beneficial Ownership Information Report

Technically, the information to be filed with FinCEN is called a Beneficial Ownership Information (BOI) Report. The following is what is required in the report for a company, an owner, and an applicant:

  • The reporting company must provide its name and any alternative (DBA) names, the address of its principal place of business, the state of formation, and its taxpayer identification number or FinCEN identifier.
  • Each beneficial owner of a reporting company must furnish their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification (ID), along with a copy of the ID document.
  • A company applicant is required to submit the same information as a beneficial owner.

If a company does not file an annual report, it may be penalized with a $500 fine for every day the report is late, up to $10,000; and its owners could even face imprisonment for up to two (2) years.

Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submits an updated report correcting the inaccurate information within ninety (90) days.

Corporate Transparency Act - Control Center copy

When Do Businesses Need to File Their Report and How Can You Extend Your Deadline?

If your company was created on or before December 31, 2023, you have until January 1, 2025, to file your BOI report. 

However, if your company was created between January 1, 2024 and December 31, 2024, you will need to file your BOI report within ninety (90) days following the date of the company’s creation.

On the other hand, if your company was created on or after January 1, 2025, you will need to file your BOI report within thirty (30) days following the date of the company’s creation.

The extension for business created on or before December 31, 2023, provides a valuable window of time for business owners to understand the reporting requirements thoroughly, gather the necessary information, and engage with legal professionals to ensure they are in compliance with the Corporate Transparency Act without the pressure of a 90-day reporting deadline.

Developments to Watch

On December 12, 2023, the Protect Small Business and Prevent Illicit Financial Activity Act, H.R. 5119, was passed by the U.S. House of Representatives.

The bill is now before the U.S. Senate. If enacted, (1) the deadline for existing companies to file their initial ownership report would be extended from one to two years (initial filing by January 1, 2026), (2) the deadline for both companies formed during 2024 and those formed after 2024 to file their initial ownership report would be codified as 90 days, (3) the deadline for companies to report changes in their reports would be extended from 30 to 90 days, and (4) FinCEN would be prohibited from allowing a company to submit a report relating to the inability of the company to obtain information instead of submitting the report required by the Corporate Transparency Act.

Get Help with CTA Reporting Requirements.

The Corporate Transparency Act reporting requirements and rules seem straightforward, but the penalties for non-compliance can be substantial.  Understanding how the CTA applies to you, how it will affect your business, and what you must do to comply introduces new burdens that you may have scarce resources to address.

Terms like “beneficial owner” and “substantial control” may seem vague and confusing, further complicating compliance efforts. However, compliance is critical for business owners who want to avoid potentially devastating consequences.

At Jacob & Greenfield, we can help you determine whether the CTA applies to your business and/or trust, and help you take the steps needed to meet the reporting requirements.  With the new law’s effective date just days away, we encourage you to reach out now to start working on a CTA compliance strategy.

If you have any questions, please schedule a no-cost consultation with us by following the link below.

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Beginning January 1, 2024, the Corporate Transparency Act (CTA) will require certain companies to report the names of beneficial owners and active individuals.
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