Business Owners Guide to Corporate Transparency Act
As a business owner, you are no stranger to juggling multiple responsibilities. From managing daily operations to navigating complex regulations and staying on top of finances, the list of tasks seems endless. Just when you think you have a handle on everything, a new hurdle appears on the horizon in the form of the Corporate Transparency Act (CTA), which introduces new reporting requirements that you will need to add to your already full plate. I’m here to break down and briefly explain this new obligation to help you understand what actions you may need to take to stay compliant.
What is the Corporate Transparency Act?
The Corporate Transparency Act is part of a broader effort to detect, prevent and punish terrorism, money laundering and other misconduct through business entities. It requires certain businesses to report information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
Who Must Report?
The reporting requirements apply to most corporations, limited liability companies (LLCs), and other entities created by filing documents with a secretary of state or similar office. However, there are some exceptions, including:
- Publicly traded companies
- Companies with more than 20 full-time employees and five million in gross receipts
- Tax-exempt organizations
- Certain financial services companies already subject to federal regulation
What Information Needs to be Reported?
Companies must report specific information about their beneficial owners – individuals who directly or indirectly exercise substantial control over the company or own or control at least 25% of the company’s ownership interests. The required information includes:
- Full legal name
- Date of birth
- Current residential or business address
- Unique identifying number from an acceptable identification document (such as a driver’s license or passport)
Ongoing Reporting Requirements
It’s important to note that compliance with the CTA is not a one-time task. After filing the initial report, businesses must update their information within 30 days of any changes to the previously reported details. This can include complex changes in beneficial ownership, such as when shares are transferred or when a new individual takes on a role that qualifies them as a beneficial owner or even simplistic updates such as renewal of a driver’s license or change of address.
When and How to Report?
The reporting requirements took effect on January 1, 2024. Existing companies have until January 1, 2025, to file their initial reports. New companies formed after January 1, 2024, have 30 days from formation to file. Reports are submitted electronically through FinCEN’s secure filing system.
Penalties for Non-Compliance
Failure to comply with these reporting requirements can result in civil penalties of up to $500 per day and criminal penalties including fines up to $10,000 and imprisonment for up to two years.
Importance and Impact to You as a Business Owner
Staying informed and compliant with the CTA helps you avoid fines, penalties and possible imprisonment.
I recommend that all business owners review these requirements carefully and determine if they apply to your operation. If you’re unsure about your obligations or need assistance with compliance, consult with a qualified professional such as your CPA or attorney.
Published in the Victoria Advocate.
Chris Laughhunn, CPA, CFP® is a Tax & Accounting Principal for Keller & Associates CPAs, PLLC and an Associate Advisor for Keller Wealth Advisors.
