Corporate Transparency Act: What Small Businesses Need to Know
By: Tj Holdmeier
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Remember that scene in a detective movie where they follow the money trail to catch the bad guys? The Corporate Transparency Act (CTA) is like that, but for businesses! It's a new law designed to shine a light on who really owns companies, making it harder for criminals to hide their money.
As the global financial landscape continues to evolve, so too do the regulatory frameworks governing business practices. In a significant stride towards bolstering financial integrity, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has set the stage for a groundbreaking era with the implementation of the CTA.
Enacted in 2021 as a bipartisan response to combat money laundering and elevate financial transparency, the CTA introduces a set of reporting obligations poised to reshape how entities conduct business in the United States. The CTA imposes a new federal filing requirement for most corporations and limited liability companies (LLCs) formed in 2024 and later, potentially affecting a wide range of small businesses, including family offices, independent contractors and mom-and-pop shop owners who commonly operate as LLCs.
This guide breaks down the key details of the CTA, helping small businesses navigate this transformative legislation confidently.
Who is affected and reporting deadlines
- Existing Companies: Entities created or registered in the U.S. before January 1, 2024, are required to file their initial reports by January 1, 2025.
- Newly Created or Registered Companies in 2024: Reporting companies formed in 2024 must file within 90 calendar days after receiving notice that their creation or registration is effective.
- Companies Created on or after January 1, 2025: Reporting companies formed in 2025 and beyond have a 30-day window for filing the Beneficial Ownership Information (BOI) report.
The CTA introduces a one-time reporting requirement, emphasizing the submission of accurate information about each beneficial owner:
• Name
• Date of birth
• Address
• Identification details from specified documents
Companies must also provide their own details, and those created after January 1, 2024, are obligated to submit information about the individuals involved in their formation.
Exemptions from the CTA
Here are three main categories of businesses that are exempt from the CTA requirements:
1. Large Operating Company:
- Your company has more than 20 full-time employees in the U.S.
- You have a physical office in the U.S. where you operate.
- You made over $5 million in U.S. sales last year.
2. Federally Regulated Entity:
- Your business is already federally regulated (includes financial institutions, insurance companies and publicly traded companies).
3. Inactive Entity:
- Your company was around before January 1st, 2020.
- You're not currently doing business.
- You're not owned by someone outside the U.S.
- There haven't been any ownership changes in the past year.
- You haven't sent or received more than $1,000 in the past year.
- You don't own any assets (including other companies).
Still unsure?
There are other exemptions beyond these three. You can find a full list on the government website, but it's a bit tricky to understand. To be safe, especially if your company falls somewhere in between, it's best to talk to a lawyer who specializes in business law. They can help you figure out exactly what you need to do and avoid any legal trouble.
Remember, this is just general information and not a replacement for professional legal advice.
Key terms:
- Reporting Company: Virtually any entity formed in the United States is considered a Reporting Company, with exemptions outlined for public companies, larger companies, entities in regulated industries, tax-exempt entities and subsidiaries controlled by exempt entities.
- Beneficial Owner: Defined as an individual owning 25% or more of a Reporting Company or exercising substantial control over it, including senior executives.
- Company Applicant: An individual responsible for filing the entity's formation documents or directing/control over the filing.
Compliance and consequences
- Reporting Obligation: The responsibility lies with the Reporting Company to submit reports to FinCEN.
- Potential Consequences for Non-Compliance: Willful failure to report or providing false information may result in civil or criminal penalties. Civil penalties can go up to $500 per day, while criminal penalties include imprisonment up to two years and/or fines up to $10,000.
- Updates: Reporting Companies must file updated BOI reports within 30 days of any changes to basic information, beneficial owners or eligibility for an exemption.
To facilitate compliance, FinCEN offers a Small Entity Compliance Guide and additional resources at www.fincen.gov/boi, providing comprehensive information and support for businesses navigating the CTA requirements. With the CTA now in effect, businesses are encouraged to familiarize themselves with the regulations, deadlines and necessary documentation to ensure seamless compliance with this crucial anti-corruption measure.
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Download: Click here to access FinCEN’s Small Entity Compliance Guide, which walks small businesses through the requirements in plain language.
Where to file
The process to file a BOI report is super simple and only takes about five minutes.
First, go to boiefiling.fincen.gov. Then, click the Get Started button under BOI E-Filing.
Under File Online BOIR, click the Prepare & Submit BOIR button.
Next, complete the report by filling out the required information and submit your report. Once complete, you will be able to download your transcript, which includes your BOIR ID.
Conclusion
Remember, the CTA is all about making our financial system safer. By playing your part, you're helping keep the bad guys out and the good guys in!
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