Small Businesses: Don’t Overlook New Corporate Transparency Act Reporting Requirements

Non-exempt businesses must report beneficial ownership information or face stiff penalties

February 06, 2024 Photo

Beginning on Jan. 1, 2024, many small businesses are now required to report to the United States government the names of their beneficial owners under the Corporate Transparency Act (CTA). Passed in 2021, the CTA requires most types of businesses, including corporations, limited liability companies, and other business entities created by a filing with the secretary of state or similar office, to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). Businesses required to report this information also include foreign entities that filed documents with the United States government to obtain authorization to conduct business in the United States. 

There are exemptions to the reporting requirement, of course. Indeed, there are 23 specific categories of businesses that are exempt from these requirements, ranging from credit unions to accounting firms. Additionally, if a business meets all the following criteria, it is also exempt: (a) it employs more than 20 employees; (b) it reports annual gross receipts above $5 million; and (c) it maintains a physical presence at a business office located in the United States. 

For non-exempt businesses, however, the reporting requirements are very real and come with stiff penalties for those who fail to comply. FinCEN reporting requirements, frequently-asked-questions, and the instruction for how to make reports and what information to include in those reports are available here. For businesses registered to do business or created prior to Jan. 1, 2024, the business must file its initial report on beneficial ownership information on or before Jan. 1, 2025. For businesses registered in 2024, they have 90 calendar days after receiving actual or public notice that its registration is effective to file the report. Finally, for businesses registered on or after Jan. 1, 2025, that business has 30 days to file the report. 

The report can be completed online, and no fee is required to be paid. The information required to be reported includes the EIN, name, and state of registration of the entity, and the legal name, date of birth, home address, and one of three types of identifying documents for each individual with beneficial ownership in the entity. Those identifying documents include a state-issued driver’s license, a state, local, or tribe-issued ID, a U.S. passport, or a foreign passport. An image of the identification document must also be uploaded.  

Both individuals and entities also have the ability to apply for a unique FinCEN identifier directly from FinCEN that can minimize the information collection (or provision) burden for entities or individuals who hold beneficial interests in multiple companies. In place of the individual or entity information set forth above, a reporting entity can instead report the FinCEN identifier for itself and for its beneficial owners in the reporting form. Companies may also enlist the help of third-party service providers to comply with their obligations, though those third-party service providers are entitled to charge a fee for those services (while there is no fee required to report directly to FinCEN). Businesses are required to update their forms when beneficial ownership changes. 

Importantly, FinCEN has already reported that it has been notified of fraudulent attempts by bad actors to solicit information from companies under the guise of either third party providers or under the guise of “agents” of FinCEN. Companies should stay vigilant to guard against these phishing attempts. 

The CTA was enacted as a measure to fight off clever use of small business entities to conceal criminal activity, including, but not limited to, money laundering, tax fraud and evasion, and foreign corruption. As a result, penalties for noncompliance are stiff and include civil penalties of up to $500 for each day a non-reporting violation continues. A person failing to comply with the obligations under the CTA may also be subject to criminal penalties, including up to two years of imprisonment and a fine of up to $10,000. 

For old or new businesses, the CTA amounts to a new requirement to report information relating to its ownership. Given the potential for stiff (and expensive) penalties, companies should focus some effort on ensuring they comply with the CTA’s requirements.

About The Authors
Travis A. Knobbe

Travis A. Knobbe is a Partner at Freeman Mathis & Gary, LLP.

Sponsored Content
Daily Claims News
  Powered by Claims Pages
Community Events
  Claims Management
No community events