The Corporate Tranparency Act (CTA)
AVOID LEGAL FINES AND JAIL TIME – GET COMPLIANT WITH THE CTA!
Have you heard of the Corporate Transparency Act? Do you know how it affects YOU as a small business owner?
If you haven't heard by now, the Corporate Transparency Act (CTA) is a federal law that creates a new reporting requirement for small business entities. Beginning January 1, 2024, the CTA requires that all “reporting entities” must file a one-time Beneficial Owner report with FinCEN (the Financial Crimes Enforcement Network.) This new law affects the vast majority of small business owners!
Why?
The CTA is designed to curb the use of LLCs and corporations as shell companies for money laundering, drug trafficking, and terrorism financing by requiring all reporting entities to submit beneficial ownership information to FinCEN . The reporting is accomplished via a secure site and FinCEN will only share the information with law enforcement agencies.
Is My Business a “Reporting Entity”?
A reporting entity is any business formed by filing a document with the Secretary of State or a similar agency. That means all corporations and LLCs may be reporting entities.
A sole proprietor or partnership not operating under a registered business entity (using their social security number to file taxes) is NOT a reporting entity.
There are 23 exemptions to reporting entities which include most financial institutions (banks, credit unions, investment companies, securities exchange, accounting firms, insurance companies, etc.), tax-exempt entities such as 501(c)(3) charities, and large companies. “Large” companies must meet six criteria which include: more than 20 full-time employees in the United States, a physical office in the United States, and more than $5M gross revenue reported on a tax return.
If your business is an LLC or Corporation that doesn’t fit any of the exemptions, it is a reporting entity. Under the CTA, reporting entities are required to disclose their “Beneficial Owners.”
Who is a Beneficial Owner?
A beneficial owner is anyone who directly or indirectly:
- Exercises substantial control over the business – this includes senior officers (CEO, CFO, General Counsel, etc.) and anyone who has the authority to remove senior officers or the board of directors or anyone in a position to make major decisions on behalf of the business; or
- Owns 25% or more of the business (stock, member interests, etc.)
A business may have one or many beneficial owners depending on its structure and organization.
When Do I have to file?
If you have an existing LLC prior to January 1, 2024: you are required to submit the report by January 1, 2025 - so you have a FULL YEAR to figure this out! Despite the extra time, I advise you to file while it is top of mind so you don’t inadvertently forget.
If you create an LLC during calendar year 2024: you have 90 days after the LLC is registered to submit your report.
If you create your LLC on or after January 1, 2025: you have 30 days after the LLC is registered to submit your report.
If anything changes once you have submitted a report: you must file an update with FinCEN within 30 days. So if you sell the business, bring on a new partner with a more than 25% share, have a change in senior officers – all of these events would require the filing of an updated report.
What Information Do I Have to Provide?
For your reporting company, you need to provide the legal name, any dbas, the address, the state of formation, and the tax id number (EIN).
For each beneficial owner, you need to provide the name, date of birth, residential address, and # from a drivers license or passport, along with an image of the drivers license or passport.
What Happens if I Don’t Submit the Report?
Willful failure to report or update your beneficial owner information can result in civil penalties up to $500 per day for as long as the violation continues and criminal penalties up to $10,000 fine and/or up to 2 years in prison. And seriously, who looks good in an orange jumpsuit???
A few more things:
While it is always nice to have help, you are NOT required to have an attorney or CPA fill out the form for you. You can fill this out on your own.
For additional information about the reporting requirements under the Corporate Transparency Act, visit https://www.fincen.gov/boi. This page will link you to FAQs, an informational brochure, and a video about the Corporate Transparency Act.
Cheri Andrews is a small business attorney licensed in Pennsylvania and Maryland. Using flat rate and subscription pricing models that take the fear out of legal fees, she partners with female-owned and operated small businesses and solopreneurs so they can move forward with confidence, knowing their business is legally protected and positioned for success.
Cheri received her BA magna cum laude from Mount Holyoke College and her JD from Temple University School of Law. She has over 30 years of experience in both law firms and corporate settings and earned the prestigious in-house counsel certification from the Association of Corporate Counsel.
Cheri's practice areas include business formation, contracts, policies, copyrights and trademarks, and other business needs. While some of her services are limited to her licensed states, Cheri can provide copyright and trademark services (which are based on federal law) nationally.
Cheri is the author of Smooth Sailing, A Practical Guide to Legally Protecting Your Business. Smooth Sailing is available in both eBook and paperback anywhere books are sold.
Cheri D. Andrews, Esq.