Small Businesses and the Corporate Transparency Act
As we approach January 1, 2024, small businesses across the United States are on the cusp of a significant regulatory shift. The implementation of the Corporate Transparency Act (CTA) and the Beneficial Ownership Information (BOI) Reporting requirements is a new era of compliance and transparency.
Understanding the Corporate Transparency Act
The CTA, primarily an anti-money laundering law, aims to prevent illicit activities such as money laundering, terrorism financing, and tax fraud. It requires some businesses to disclose information about their beneficial owners to FinCEN. This move is designed to peel back the layers of anonymity often exploited by bad actors in corporations, LLCs, and similar entities.
Who Needs to Comply?
Virtually every small business structured as a corporation or LLC must comply unless they fall under one of the exemption categories. These exemptions generally apply to entities already under substantial federal or state regulation, such as publicly traded companies, banks, and insurance companies. A notable exemption is for “large operating companies” meeting specific criteria in employee count, physical presence, and revenue.
What Information is Required?
Businesses must report details such as the legal name, trade name, address, jurisdiction of formation, and taxpayer identification number. For each beneficial owner and company applicant, the report must include their full legal name, date of birth, address, and an identifying number from a document like a passport or driver’s license.
Defining Beneficial Owners and Company Applicants
Beneficial Owners: Individuals who, directly or indirectly, exercise substantial control over the company or own at least 25% of its ownership interests.
Company Applicants: Individuals who file the document creating the company or who are primarily responsible for directing or controlling the filing.
Key Deadlines and Procedures
Filing Deadline: Companies created before January 1, 2024, must file their initial report by January 1, 2025. Companies created on or after January 1, 2024, must file a report within 90 days of receiving the public notice. Companies created on or after January 1, 2025, have 30 days to file a report.
Updating Information: Any changes in the reported information must be updated within 30 days.
Filing Process: Reports are filed electronically through FinCEN’s system, available on their website.
Preparing for Compliance
Small businesses should start preparing now. This involves determining if they are a reporting company, gathering the required information, and setting up a system to track and update this information.
Accessing Resources and Assistance
The Corporate Transparency Act represents a step towards greater transparency in the business world. While it introduces new compliance obligations for small businesses, understanding and preparing for these changes can ensure a smooth transition into this new regulatory landscape.