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It is imperative for small business owners to understand the information the Corporate Transparency Act (CTA) requires to be provided to the U.S. Department of the Treasury. As of January 1, 2024, the CTA mandates beneficial ownership reporting for certain new and existing companies, aiming to curb money laundering, tax fraud and other illicit business practices.
The CTA requires any beneficial owner of 25% or more in any non-exempt entity created or registered to do business in the United States, including but not limited to corporations, limited liability companies, partnerships and irrevocable trusts to adhere to CTA requirements. A “beneficial owner” is defined as any individual who directly or indirectly exercises “substantial control” over or owns at least 25% of the reporting company’s ownership interests.
The CTA provides 23 exemptions from CTA reporting including publicly traded companies, entities that file reports with the SEC, banks, credit unions, money-sensitive businesses, security brokers, tax-exempt entities, insurance companies, accounting firms, and large operating companies. A “large company” is defined as an entity that (1) employs more than 20 full-time employees, (2) operates a physical office within the United States, and (3) filed federal income tax or information return demonstrating gross receipts or revenues exceeding $5 million for the previous year.
The CTA requires each beneficial owner to furnish their full legal name, date of birth, current residential address and a passport, driver’s license, or state identification number to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.
Deadlines under the CTA are mandatory. Businesses established on or after January 1, 2024, must comply with the reporting requirements within 90 calendar days of the entity’s receipt of actual or public notice that the entity’s creation is effective. For businesses in operation before January 1, 2024, the CTA report must be filed no later than January 1, 2025. Any change in information reported to FinCEN must be updated within thirty calendar days after the date on which the change occurs.
Failure to comply with the CTA can lead to severe consequences. Civil penalties for committing reporting violations are currently $591 per day. Criminal penalties include imprisonment for up to two years and a fine not to exceed $10,000.
Importantly, compliance with the CTA extends beyond simply avoiding penalties; the CTA enhances transparency and credibility for your business. Adhering to these regulations demonstrates a commitment to ethical business practices, which can positively impact investor confidence and relationships with financial institutions. It also aligns an entity’s operations with evolving regulatory standards, mitigating the risk of reputational damage and potential disruptions to business activities.
Staying compliant with the CTA can also open doors to new opportunities. Investors and partners prioritize working with businesses that demonstrate transparency and compliance with regulatory requirements. Entities proactively fulfilling their obligations under the CTA position themselves as a trustworthy and reliable entity, potentially attracting investment and partnership opportunities that may otherwise be inaccessible.
In today’s interconnected and regulated business environment, compliance is not just a legal necessity; it is a strategic advantage. Partnering with legal experts and staying proactive in compliance efforts not only avoids penalties but also enhances a business’s reputation, credibility and growth potential in the competitive marketplace.
If navigating these requirements seems daunting, know that help is available. At Rosenblatt Law Firm, our seasoned team of attorneys specializes in assisting businesses with CTA compliance. We undertake the necessary steps swiftly to safeguard you and your business against fines and penalties. Schedule a free consultation with us at rosenblattlawfirm.com or (210) 562-2900 to ensure your business stays on the right side of the law.
