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 can also connect you with trusted professionals who specialize in business law or tax compliance to ensure you’re fully prepared.
CTA Basics: What You Need to Know
Unlike most laws that exempt small businesses from reporting, the CTA applies to a wide range of small businesses, including single-member LLCs, S-Corporations with a single owner, and low-revenue businesses.
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.
Impacts on Small Businesses
While the CTA primarily targets large-scale financial crimes, it has implications for small businesses, too. The added administrative burden of collecting and submitting ownership information can be time-consuming and costly. Additionally, there are concerns about the potential misuse of the data collected. While the government has implemented safeguards, there’s always a risk of data breaches or unauthorized access, potentially leading to identity theft or other consequences.
How to Comply With the CTA
Now that you know the CTA’s purpose and its implications for small businesses, here’s how to comply:
1. Determine if Your Business is Subject to the Law: Understand the requirements based on your business structure and formation date. I can refer you to a qualified professional who can help you determine your specific obligations.
2. Gather Necessary Information: Collect the details about your business and its beneficial owners as outlined above.
3. Choose a Reporting Method: Decide how you will submit the information to the Financial Crimes Enforcement Network (FinCEN). This process can be tricky, so I recommend working with a trusted professional. I can connect you with someone who specializes in business law or tax compliance for this purpose. You can also file your beneficial ownership report directly through the FinCEN website.
4. Maintain Records: It’s essential to keep accurate records of the information you provide. If needed, I can connect you with a CPA or attorney to help you establish a system to maintain these records.
5. Stay Informed: Stay updated on any changes to the law or related regulations. With trusted professional support, you’ll be notified of any updates that may affect your business.
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 $500 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. I encourage you to reach out to a trusted business professional such as a business law attorney to ensure your business is compliant and to avoid potential penalties.
Your Next Step
Even though the CTA became law in 2021, the government began accepting filings only in 2024. Therefore, 2024 is the first year you’re required to submit your information. Existing companies registered in the U.S. before January 1, 2024, must file by January 1, 2025. Newly created companies in 2024 have 90 calendar days to file after receiving notice of their effective creation or registration.
If you’d like guidance on whether the CTA applies to your business and how to proceed, I can help connect you with a trusted business attorney. They can provide the advice and support you need to comply and take the burden off your shoulders, so you can continue focusing on what matters: growing your business.
How I Support You in Finding the Right Guidance for Compliance
Navigating new regulations like the CTA can feel overwhelming. As part of my commitment to supporting business owners, I’m happy to refer you to experienced legal and financial professionals who can provide the guidance you need to ensure your business’s compliance. They can help you assess your business’s compliance status, address any vulnerabilities, and create a customized plan to keep your business compliant and secure.