All small businesses and their owners need to understand and comply with the Corporate Transparency Act (“CTA”) beginning in 2024. What follows is a short summary of the CTA that will be relevant to small businesses represented by Ankney Law.
What is the CTA?
The CTA is a United States federal law that requires small businesses to report information about their owners and organizers or incorporators (called, “applicants”) to the U.S. government.
Why was it enacted?
It’s a common business strategy to use business entities, especially limited liability companies, to keep the identity of the business owners confidential. The CTA was enacted to help the U.S. government gather information about the owners and applicants of small businesses to make it harder for them to hide behind business entities to commit fraud, money laundering, or other bad acts. The reported information could make law enforcement against businesses used for those purposes easier.
Who does it apply to?
The CTA applies to corporations, limited liability companies, and any other type of entity created by filing a document with a U.S. state, commonwealth, territory, or possession. It also applies to foreign entities registered to do business in any state, commonwealth, territory, or possession. Some categories of businesses are not required to report, but those exceptions are narrow and generally do not apply to any small businesses formed or represented by Ankney Law.
What does the CTA require?
Small businesses must report information about their owners and applicants to the Financial Crimes Enforcement Network of the U.S. Department of Treasury (“FinCEN”). Reports must be filed electronically using FinCEN’s secure online reporting system, called “BOSS.”
A small business must report information about any individual who exercises “substantial control” over the entity or owns or controls at least 25% of the ownership interests. FinCEN has rules for determining whether someone exercises substantial control over the entity. For example, an individual who is a senior corporate officer of the company must be reported, even if she owns less than 25% of the company’s stock. There are some limited exceptions about who must be reported (e.g., minor children owners are exempt).
A small business will need to report certain basic information about its business entity (e.g., name, trade name, address, state of formation, and EIN), its business owners (e.g., name, date of birth, address, and an image of a driver’s license or passport), and its entity applicant (e.g., name, date of birth, address, and an image of a driver’s license or passport).
When do you have to comply?
There are three different reporting periods, depending on when your business entity was started:
If your business was started before January 1, 2024, you have until January 1, 2025, to report your owner information. You will not be required to report your entity's applicant information for businesses started before January 1, 2024;
If your business is started on or after January 1, 2024, and before January 1, 2025, you must report the owner and applicant information within 90 days after forming your new entity; and
If your business is started on or after January 1, 2025, you must report the owner and applicant information within 30 days after forming your new entity.
How do you comply?
FinCEN’s online reporting system became available on January 1, 2024. You can find it at this link: https://boiefiling.fincen.gov/. You will need to enter the system and provide the required information.
What are the penalties for non-compliance?
A small business that does not report under the CTA could be subject to civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues. Owners and applicants who refuse to provide required information to the small business for reporting could also be subject to civil and criminal penalties.
Will my reported information become public?
No, the information reported to FinCEN will not be available to the public or available in response to a Freedom of Information Act (“FOIA”) request, but it will be available to certain U.S. government agencies, state government agencies, foreign governments, and financial institutions for law enforcement or other limited purposes. The recipients of the information must safeguard its confidentiality.
Almost every small business represented by Ankney Law will be required to report under the CTA. If you have questions about the applicability of the CTA to your small business or about how to report the required owner and applicant information, contact Joel Ankney at firstname.lastname@example.org.