The Corporate Transparency Act and What It Means for Your Small Business
You’ve poured your heart and soul into building your small business. You’ve worked tirelessly, made sacrifices, and taken risks. Now, a recent law could impact how you operate. It’s called the Corporate Transparency Act (CTA).
This law, passed in 2021, aims to crack down on financial crimes like money laundering and tax evasion by requiring many businesses to disclose information about their owners. While this might sound like an added burden, it’s essential to understand how it affects you and what steps you can take to comply. In this article, I’ll break down the basis of the law, its potential impacts on your business, and what you need to know to comply with the CTA’s provisions. I’ll also show you how to get support to ensure your business is compliant. Let’s get started.
CTA Basics: What You Need to Know
The CTA is based on lawmakers’ concern about the role of shell companies in facilitating illicit activities. These shell companies are often used to disguise the true ownership of assets, making it difficult for law enforcement to trace the flow of money. Therefore, the core purpose of the CTA is to collect beneficial ownership information. You’ll need to provide details about the individuals who ultimately own or control your business. This includes names, dates of birth, addresses, and passport or government-issued ID numbers.
You’ll also need to provide information about your business, such as its legal name and address and the name and address of a company applicant (usually the person who formed the company). By requiring businesses to disclose their beneficial owners, the government aims to shine a light on shadowy operations. This increased transparency is expected to deter criminals and make investigating and prosecuting financial crimes easier.
Moreover, while the CTA casts a wide net, it doesn’t impact every business. It targets corporations and limited liability companies (LLCs) that operate in the United States. However, the definition is broader than just these types of entities. Any business formed by filing paperwork with a state or tribal government is likely covered. That most likely means your business is subject to the law. One general exception is a business structured as a sole proprietorship or partnership. But it’s always a good idea to double-check to be sure.
How to Comply With the CTA
Now that you know the purpose of the CTA and how it works, let’s turn to compliance. To ensure your business is compliant with the CTA, you should take the following steps:
Determine if your business is subject to the law: Understand the specific requirements based on your business structure and formation date.
Gather necessary information: As I outlined above, collect the required details about your business and its beneficial owners.
Choose a reporting method: Decide how you will submit the information to the Financial Crimes Enforcement Network (FinCEN), the government agency responsible for administering the law.
Maintain records: Keep accurate and up-to-date records of the information you provide.
Stay informed: Stay current on any changes or updates to the law or regulations. When you work with me, I’ll do this for you and notify you when any changes affect your business, so you’ll never have to worry if your business is at risk.
While these steps provide a solid foundation for compliance, it’s essential to understand the potential consequences of non-compliance. Failing to meet the CTA’s requirements can result in significant penalties, including hefty fines and even imprisonment in severe cases. The penalties for failure to comply include:
Civil penalties: Businesses that fail to report required information about their beneficial owners or report incorrect or incomplete information face fines of up to $591 per day until the violation is corrected. These fines can quickly accumulate, leading to significant financial burdens.
Criminal penalties: In cases of willful or fraudulent non-compliance, individuals involved can face fines of up to $10,000 and imprisonment for up to two years.
As you can see, the consequences of noncompliance – even if it’s accidental – are too significant to ignore.
Your Next Step
Even though the CTA became law in 2021, the government didn’t start accepting filings until January 1, 2024. Therefore, 2024 is the first year you’re required to submit your information. Filing deadlines are approaching quickly. Existing companies registered to do business in the U.S. before January 1, 2024, must file by December 31, 2024. Companies that were created or registered in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective (this information comes from your State’s Secretary of State, not the federal government).
Your next step is to determine whether your business is subject to the law, what information you must provide, and when you must provide it. Then, create a strategy for ensuring your business complies with the CTA. Furthermore, we’ll set you up for support on an ongoing basis, so you won’t have to worry about future compliance.
