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. To do so, you can schedule a call with me using the link below.
Impacts on Small Businesses
While the primary target of the CTA is to combat large-scale financial crimes, it also has implications for small businesses. The added administrative burden of collecting and submitting ownership information can be time-consuming and costly. There are also concerns about the potential for misuse of the data collected. While the government has implemented safeguards to protect this sensitive information, there's always a risk of data breaches or unauthorized access. This could lead to identity theft, fraud, or other harmful consequences for businesses and individuals.
How to Comply With the CTA
Now that you know the purpose of the CTA, how it works, and the impacts on your small business, 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. This can be tricky, so don’t go it alone.
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.
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.
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. And the filing deadlines are approaching quickly. Existing companies registered to do business in the U.S. before January 1, 2024, must file by January 1, 2025. 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 reach out to me, and I’ll help point you in the right direction. I can connect you with resources to determine if your business is subject to the Corporate Transparency Act (CTA), what information you’ll need to provide, and when it’s due. I’m here to support you in getting the guidance you need, so you can focus on what matters most—growing your business.
How I Help You Navigate Important Changes
While my primary focus is helping clients with estate planning, I know that many of you are also business owners. As a trusted advisor, I’m committed to sharing relevant information that could impact you and your business. That’s why I keep an eye on new regulations, like the Corporate Transparency Act (CTA), that may affect your business operations and compliance.
I’m here to connect you with resources and information that support your business’s health and longevity. I’ll always be here to share valuable insights that help you protect and grow what you’ve built.
Book a call here to learn more and get started today.
This article is a service of DeCosimo Law, Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices with your business throughout life and in the event of your death.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.