If you own a small business, chances are you are not aware of The Corporate Transparency Act (“CTA”) that came into effect on January 1, 2024.   As a law firm that advocates tireless for small business everyday, we wanted to bring this to your attention to make sure you are aware of your obligation under the law.

What is it?

The law is aimed at preventing the misuse of U.S. companies for illicit activities such as money laundering, fraud, and financing of terrorism. It does so by increasing transparency in the ownership of corporations and limited liability companies (LLCs). 

How Does It Affect Small Businesses?

The CTA requires corporations and LLCs to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. A beneficial owner is anyone who directly or indirectly owns 25% or more of the entity or exercises substantial control over it. If you manage or make decisions for a small business, you may have to registered as a beneficial owner as well.
If there is ever a change in the beneficial owners, you have to disclose the identities of any individuals who fall into these categories within 30 days. For example, if you have hire a new CFO, that would be a trigger for you to register.

It’s important to note that not all entities are subject to these requirements. The CTA exempts several types of entities, including:

• Companies that are already heavily regulated, such as banks and credit unions.
• Companies that have a physical presence in the U.S., more than 20 full-time employees, and filed federal income tax returns demonstrating more than $5 million in gross receipts or sales.

This means that many small businesses, particularly those that are larger and well-established, may be exempt from the CTA’s reporting requirements.

Compliance and Penalties

Compliance with the CTA is crucial. Failure to accurately report beneficial ownership or providing false information can result in civil penalties up to $500 per day and criminal fines up to $10,000, and/or imprisonment for up to two years.

Conclusion

While the CTA imposes new obligations on small businesses, it’s a step towards greater corporate transparency. As a small business owner, it’s essential to understand these requirements or seek legal counsel to ensure compliance and avoid penalties.  If you need help, please click below to make an appointment.

All articles presented on this website are considered general information should not be construed as legal advice. No attorney/client relationship is established or intended from simply reading this article.