As a small business owner, you may be impacted by a new law called the Corporate Transparency Act (CTA). Under CTA, you are required to file a beneficial ownership information report. Understanding CTA, what beneficial ownership information is, and how your business will be impacted will help you be compliant and avoid steep penalties (up to $10,000 and 2 years in prison).
What is the Corporate Transparency Act?
Congress passed CTA to combat money laundering and other illegal activities. It is meant to prevent “bad actors” from hiding their identities by using shell companies. The CTA requires certain businesses to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), an agency within the U.S. Treasury Department. Please note that pending litigation has put the implementation of the law in limbo, but business owners should be aware of the potential changes.
Am I impacted?
FinCEN estimates that over 32 million businesses will be required to report Beneficial Ownership Information in the first year of the program.
All U.S. domestic businesses, created by registering with a state, are subject to the CTA. This includes corporations, LLCs, limited partnerships, and limited liability partnerships (LLPs) to name a few. Sole proprietors and general partnerships, which are businesses that are not created by registering with any state, are not subject to the CTA. In addition, there are a few other exemptions as explained later.
Who is exempt from filing?
The following entities are exempt from the CTA requirements:
- Businesses that are already federally regulated, such as financial institutions, publicly traded companies, insurance companies and tax-exempt entities.
- Large companies employing over 20 full-time employees, with gross receipts over $5 million and a substantial U.S. presence.
What do I have to do to comply?
Business entities formed before January 1, 2024, have until January 1, 2025, to comply with the CTA’s reporting requirements. Those established in 2024 must submit a BOI report within 90 calendar days of either receiving official notification of its formation becoming effective or the secretary of state or equivalent office issuing public notice of its formation, whichever happens first.
Reporting companies formed or registered on or after January 1, 2025, will have 30 calendar days to file their initial BOI reports after receiving actual or public notice that the entity has been formed or registered, whichever happens first.
Any changes or updates to a previously filed BOI report must be submitted within 30 days of those changes.
What is beneficial ownership information?
A beneficial owner is any individual who either (i) holds 25% or more ownership of a Reporting Company or (ii) exercises “substantial control” over a Reporting Company. Many senior executives may be classified as Beneficial Owners under CTA due to their significant influence over a Reporting Company.
What do I do now?
To file the BOI form, you must do so through FinCEN’s website https://www.fincen.gov/boi. For more, please see https://www.uschamber.com/co/start/strategy/how-to-file-beneficial-ownership-report U.S. If you are an Azzad client and think you might be required to file under the new CTA legislation, please contact your advisor.