What the Corporate Transparency Act Means for Your Small Business

Congress passes many laws each year that affect small businesses, but not all come with reporting requirements. However, the 2021 Corporate Transparency Act, which went into effect on January 1, 2024, comes with a reporting requirement that will affect a majority of small businesses in the U.S. Here’s what you need to know.

What is the Corporate Transparency Act (CTA)?

At its core, the Corporate Transparency Act of 2021, or CTA, is designed to expose bad actors. This includes money launderers and tax evaders who conceal their identities and actions through business entities like corporations and limited liability companies (LLCs).

As part of the law, certain types of businesses must file a report (called a Beneficial Ownership Information report, or BOI) with the Financial Crimes Enforcement Network. The Financial Crimes Enforcement Network, also known as FinCEN, is a federal agency and a division of the U.S. Treasury.

WHICH BUSINESSES ARE AFFECTED BY THE CORPORATE TRANSPARENCY ACT?

Most small businesses organized as LLCs or corporations need to file a BOI under the Corporate Transparency Act. Some types of businesses excluded from reporting are:

• Sole proprietorships
• Foreign entities not registered to do business in the United States
• Unincorporated associations
• Banks, credit unions, and some other financial institutions
• Financial advisors, wealth planning trusts, and securities-related agencies
• Insurance companies
• Tax-exempt entities classified as 501(c) in the Internal Revenue Code
• Public Utilities

There are additional types of businesses excluded from the act, so make sure your business isn’t one of the 23 exemptions. If your business was established before January 1, 2024, and does not fall within one of the exemptions as defined by the act, you must file a Beneficial Ownership Information report no later than January 1, 2025.

Businesses established between January 1, 2024, and January 1, 2025, must file a BOI within 90 calendar days. Those established after January 1, 2025 that fall under the reporting requirements have 30 calendar days to file a BOI.

While there is no annual re-filing requirement at this time, you will need to file a new report noting changes relative to your company’s beneficial owners (owners with 25% or more share in the business). This includes information such as changes to business ownership, owner or business physical addresses, or unique identifying numbers. In this circumstance, you will have 30 calendar days to file a new BOI report.

WHAT IS A BENEFICIAL OWNERSHIP REPORT?

A BOI, or Beneficial Ownership Information report, lists information about the individuals who own a U.S.-based business that falls under the reporting requirements of the Corporate Transparency Act of 2021. Unless the information on the report changes, it only needs to be filed once.

You or your reporting company will need to provide the following information when filing a BOI with FinCEN for all owners who have a 25% or greater share in the business:

• Full legal name
• Date of birth
• Street address
• An official identifying number, such as a valid, non-expired driver's license number, U.S. passport, or some other state, government, or Tribal-issued non-expired personal identification number

You will also have to list information about your business, like its name and physical address, jurisdiction of formation (e.g., Pennsylvania Department of State), and its taxpayer identification number. If you start a business after January 1, 2024, you will also be asked to list who founded the company as the “company applicants.”

HOW TO FILE A BOI UNDER THE CORPORATE TRANSPARENCY ACT

BOIs are filed electronically. You can file a Beneficial Ownership Information report online yourself or assign responsibility to an agent authorized to do so on your behalf, such as your lawyer or tax accountant. To file a BOI on behalf of your company, visit www.fincen.gov/boi.

WHO HAS ACCESS TO BOI INFORMATION?

The information submitted in a BOI may be disclosed by FinCEN to a variety of agencies or agents. Among these are some you would expect, such as the Treasury Department and federal agencies engaged in national security, intelligence, and law enforcement. Others may include:

• Government regulators of finance
• State law enforcement (via court order)
• Financial institutions (with the company’s consent)
• Certain foreign authorities requesting information through a U.S. agency

WHAT HAPPENS IF A BUSINESS FAILS TO FILE A BOI?

If your business is required to report information under the Corporate Transparency Act and fails to do so by the prescribed reporting deadlines, you could face some pretty harsh penalties. This includes both civil and criminal consequences of up to two years of prison time and fines of up to $100,000.

Filing a Beneficial Ownership Information report under the 2021 Corporate Transparency Act is now a standard part of doing business in the U.S. for most small businesses. The good news is that once filed, your information won’t have to be updated outside of changes to ownership, so the cost to your business in terms of time should be minimal. Plus, you will have the added satisfaction of knowing that you have done your part to help identify tax evaders, money launderers, and other bad actors.