As the United States continues to grapple with corporate accountability, one of the most significant pieces of legislation to affect business transparency in recent years is the Corporate Transparency Act (CTA). Passed as part of the National Defense Authorization Act (NDAA) of 2020, the CTA requires certain businesses to disclose their true beneficial owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
The Act’s goal is to combat money laundering, terrorist financing, and other illicit activities that have historically been difficult to track due to the opaque ownership structures of certain businesses. As of January 2024, many businesses are now required to comply with these new regulations. However, many organizations are still working to fully understand the implications of the CTA and how to navigate its requirements.
Key Provisions of the Corporate Transparency Act
The CTA mandates that most U.S. companies, including limited liability companies (LLCs) and similar entities, report their beneficial owners—the individuals who ultimately own or control the company. This information must be submitted to FinCEN and kept updated annually. Businesses must report details such as the name, address, date of birth, and unique identifying numbers (like a driver’s license or passport number) of their beneficial owners.
There are, however, some exemptions to the CTA. Larger companies, including publicly traded entities and those with more than 20 full-time employees, substantial revenue, and an operating presence in the U.S., are not required to report under the Act. Still, many small and medium-sized enterprises (SMEs) will find themselves under the scrutiny of this new regulation.
The Impact on Small Businesses
For smaller businesses, particularly family-owned enterprises or those operating in industries traditionally opaque to government regulators, the Corporate Transparency Act could prove burdensome. Many small business owners who have long operated under the assumption that they can keep their ownership structures private may now be forced to provide highly detailed personal information about themselves.
Business owners should be prepared for potential delays and confusion as they attempt to comply with the regulations. The requirement to update ownership information annually could add an additional layer of administrative work, which could be especially challenging for companies without dedicated legal teams or compliance officers.
Enforcement and Penalties for Non-Compliance
Failure to comply with the Corporate Transparency Act can result in severe penalties. Businesses that fail to report their beneficial owners or submit false information could face fines up to $500 per day until the issue is resolved, with penalties totaling up to $10,000 for willfully violating the provisions of the CTA.
In extreme cases, individuals who knowingly provide false or fraudulent ownership information could face criminal prosecution, including imprisonment for up to two years.
Steps for Businesses to Comply
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Identify Beneficial Owners: Businesses must identify the individuals who have substantial ownership or control of the company.
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Gather Required Information: This includes personal identifying information such as names, addresses, dates of birth, and government-issued IDs.
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File with FinCEN: Submit the required information through FinCEN’s secure online portal, ensuring that all filings are accurate and up-to-date.
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Stay Informed: Since this is a relatively new regulation, businesses should stay up-to-date on any additional changes or clarifications regarding the CTA.
For businesses that are unsure about how to navigate these requirements, consulting with a legal expert specializing in corporate law or compliance is highly recommended. Corporate attorneys can help guide businesses through the process, ensuring compliance and avoiding potential penalties.
