What Small Businesses Need to Know about the Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA) is a significant piece of legislation that small businesses need to be aware of, as it introduces new requirements related to the disclosure of beneficial ownership information.

Here are the key points that small businesses should know about the CTA:

1. Beneficial Ownership Reporting Requirements

The CTA requires many small businesses to report their "beneficial owners" to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who directly or indirectly own or control 25% or more of the company or who exercise substantial control over the company.

This information includes the beneficial owner's name, date of birth, address, and a unique identifying number (such as a driver's license or passport number).

2. Who Must Report

The CTA applies to corporations, limited liability companies (LLCs), and other similar entities that are created by filing a document with a secretary of state or similar office.

There are exemptions, including for larger companies (those with over 20 employees and more than $5 million in gross receipts), regulated entities (such as banks), and inactive entities.

3. Timeline for Compliance

Entities created before January 1, 2024, have until January 1, 2025, to file their initial report with FinCEN. Entities created after January 1, 2024, must file their report within 30 days of creation or registration.

4. Ongoing Reporting Obligations

Businesses must update their beneficial ownership information within 30 days of any change (e.g., if a new owner acquires 25% or more of the company or if an existing owner’s information changes).

5. Penalties for Non-Compliance

Failure to comply with the CTA can result in civil penalties of up to $500 per day until the violation is corrected, and criminal penalties can include fines of up to $10,000 and/or imprisonment for up to two years.

6. Privacy and Security Considerations

While the CTA mandates the disclosure of beneficial ownership information, this information is not publicly accessible. It is protected and can only be accessed by authorized government authorities and financial institutions under specific circumstances.

7. Impact on Small Businesses

Small businesses should be prepared to identify and report their beneficial owners accurately. They should also establish a process to monitor and update this information as required.

Business owners should consult with legal or compliance experts to ensure they meet the requirements of the CTA and avoid potential penalties.

8. Preparation and Action Steps

• Review and understand the CTA requirements as they apply to your business.

• Gather the necessary information about your company’s beneficial owners.

• Set up systems to track changes in ownership or control and ensure timely reporting to FinCEN.

• Stay informed about any updates or changes to the CTA regulations.

The CTA aims to combat money laundering, terrorism financing, and other illicit activities by increasing transparency around company ownership. While it introduces new compliance obligations for small businesses, understanding these requirements and taking proactive steps can help businesses avoid penalties and ensure they remain compliant.

You can find out more information about how to file your report here.