Starting in January 2024, your small business might be obligated to disclose ownership details to the government as a result of the implementation of the Corporate Transparency Act.
The Corporate Transparency Act (CTA), passed in 2021, seeks to address illicit activities such as tax fraud, money laundering, and terrorism financing by increasing the collection of ownership information from specific U.S. businesses engaged in or interacting with the domestic market. According to the new law, businesses meeting specific criteria are required to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
Information gathered by FinCEN will populate a national registry containing business formation documents filed with state-level business regulatory offices. Business owners failing to comply with CTA reporting requirements could face civil penalties and potentially criminal prosecution.
What Businesses Are Required to Comply With the CTA?
In short, the CTA applies to companies in the United States with twenty or fewer full-time employees, formed through the submission of paperwork to the Secretary of State or a similar state-level entity.
This mainly applies to corporations and limited liability companies. But in several states, limited partnerships, professional associations, cooperatives, real estate investment trusts, and trusts are also required to file business formation documents that must be filled with the Treasury Department under the terms of the CTA. Non-US companies registered to operate in the United States must also submit applicable reporting documentation.
What Business Formation Details Must Be Reported Under the CTA?
Qualifying business must submit three key pieces of reporting information:
- The Company Name and any applicable DBAs, the address of its principal place of business, state of formation, and taxpayer identification number.
- The Beneficial Owner’s* full legal name, date of birth, and residential address, along with an identification number from a driver’s license, passport, or other state-issued identification (ID), and a copy of the corresponding ID.
- A Beneficial Owner is defined as an individual who exercises “substantial control” over the reporting company or holds at least a 25% stake in the business. Senior officers, directors, and stakeholders responsible for making “significant business decisions” likely qualify as “beneficial owners.”
- The Company Applicant’s* full legal name, date of birth, and residential address, along with an identification number from a driver’s license, passport, or other state-issued identification (ID), and a copy of the corresponding ID.
- A Company Applicant is defined as anyone who works for a business formation service or law firm and may include accountants or lawyers if they file documents that create or register a reporting company on behalf of a third party.
What’s The Timeline For CTA Document Filing?
Businesses formed before January 1, 2024, have until January 1, 2025, to complete their CTA registration.
Moving forward, businesses formed after January 1, 2024, will have 90 days to complete their CTA registration.
What Are The Penalties For Failing to Submit CTA Documentation?
Business owners who fail to provide documentation or knowingly submit incorrect information can face fines of up to $500 per day. These fines are capped at $10,000 and prisons sentence of up to two years. If you unintentionally submit incorrect information, you can avoid fines and jail time if you submit corrected information within 90 days.
Concerned About CTA Compliance?
Carbon Law Group can help!
If this is the first you’ve heard of the Corporate Transparency Act, you likely have questions about compliance requirements, what materials need to be provided, and how to file necessary documentation.
Don’t worry, Carbon Law Group is here to help! We’re experts in the new CTA requirements. Our Done For You Compliance Services will determine if your business is subject to CTA regulations, gather the necessary data, and submit your compliance package to the FinCEN on your behalf.
