Small and family businesses must comply with the requirements of a new law called the Corporate Transparency Act (CTA), which went into effect on January 1, 2024. Aimed at combating money laundering, terrorism financing, tax evasion, and other illegal activities, the CTA requires certain companies, including small and family-owned businesses, to disclose detailed ownership information to the U.S. Department of the Treasury. Here's what you need to know for compliance:
Who Must File Under the CTA?
The CTA applies to a wide range of businesses, particularly smaller companies that may not be accustomed to such regulations. Any corporation, limited liability company (LLC), or similar entity created in the U.S. or registered to do business in the U.S. is generally required to file.
However, some exemptions exist, which we’ll cover below. The primary businesses affected are smaller and family-owned companies that are often structured as LLCs or S-Corps. If your business employs fewer than 20 full-time employees, has less than $5 million in gross receipts, and does not operate in a highly regulated industry, you are generally required to file.
Basic Filing Requirements and Information Needed
Companies required to file must submit a Beneficial Ownership Information (BOI) report to FinCEN. This report must include, full legal name, date of birth, current residential or business address, and a unique identifying number from an acceptable identification document, such as a passport or driver's license.
The beneficial owner is defined as any individual who either owns or controls at least 25% of the company, or exercises substantial control over the company’s operations. In smaller or family businesses, this could mean family members, shareholders, or partners who hold significant influence over the company.
Filing Deadlines
Businesses that were already in existence before January 1, 2024, have until January 1, 2025, to file their initial BOI report. Any business formed on or after January 1, 2024, must file their BOI report within 30 days of the date of formation or registration.
Penalties for Non-Compliance
Failing to comply with the CTA's filing requirements can lead to severe penalties including civil penalties of up to $500 per day for each day the violation continues, and criminal penalties of fines up to $10,000 and imprisonment for up to two years for willfully providing false information or failing to report beneficial ownership details.
Exemptions to the CTA
While the CTA applies to a wide range of entities, certain organizations are exempt from its filing requirements. Exempt entities include: (1) Businesses with more than 20 full-time employees and more than $5 million in gross receipts; (2) Highly regulated entities such as banks, credit unions, insurance companies, and (3) publicly traded companies that already provide ownership information to other regulatory agencies are exempt. Further, companies that have been inactive for over a year and no longer conduct business are also exempt.
Conclusion
The Corporate Transparency Act is a significant new regulation that small and family-owned businesses must understand to avoid penalties. While the purpose of the CTA is to increase transparency and prevent financial crimes, its scope means that even well-intentioned businesses must now meet new reporting requirements. Stay informed and compliant is critical.
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