The Corporate Transparency Act (CTA) is a significant piece of legislation aimed at combating illicit financial activity in the United States. This act, which went into effect on January 1, 2024, requires small businesses to file beneficial ownership information reports, also known as corporate transparency reports. The primary goal of the CTA is to increase transparency in business ownership and prevent the misuse of anonymous shell corporations for activities such as tax fraud and money laundering.
Under the CTA, all privately held companies, whether domestic or foreign, registered to conduct business in the U.S., are considered reporting companies and must file a beneficial ownership information report (BOIR) with the Financial Crimes Enforcement Network (FinCEN). Beneficial owners, defined as individuals who own or control at least 25% of an organization or exercise substantial control in key roles within the company, must be identified and their personal information reported.
Small businesses that fall under the reporting company definition are required to provide specific information in their corporate transparency reports. This includes details such as the company’s legal name, business address, state of formation, taxpayer identification number, and information about beneficial owners, including their full legal name, date of birth, home address, and identification document.
Failure to comply with the reporting requirements of the CTA can result in civil penalties of up to $591 per day, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000. Additionally, many financial institutions also require small businesses to submit beneficial ownership information to protect against illicit financial activities.
To file a corporate transparency report, small businesses must determine if they are required to file, identify their beneficial owners, establish a reporting procedure, and file the report online through FinCEN’s platform. The filing deadlines vary based on the establishment date of the reporting company, with companies established before January 1, 2024, having until January 1, 2025, to file their initial reports.
Overall, the Corporate Transparency Act represents a significant step towards increasing transparency and accountability in business ownership, ultimately helping to combat financial crimes and protect the integrity of the U.S. financial system. Small businesses must ensure compliance with the reporting requirements outlined in the act to avoid potential penalties and legal consequences.
