The Corporate Transparency Act created a significant change in reporting requirements for many U.S. small businesses, some of which face a Jan. 1, 2025, deadline for reporting beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
The CTA aims to prevent money laundering and other illicit activities by increasing ownership transparency in LLCs, corporations, and similar business entities. Small business entities are required to report “beneficial owner” details to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
“Beneficial owners” are individuals owning at least 25% of a business entity or exercising substantial control over the business, including senior officers, regardless of actual ownership. Details can be found in the Small Entity Compliance Guide: Beneficial Owner Reporting Requirements on FinCEN’s website, which also has a Frequently Asked Questions page.
New businesses created or registered in 2024 have 90 days to file their report and FinCEN has been accepting these throughout the year. However, businesses that existed prior to Jan. 1, 2024, were given extra time, until Jan. 1, 2025, to file their reports.
Affected businesses must provide FinCEN with information about their beneficial owners, such as full legal names, dates of birth, addresses, and a unique identifying number from an official document, such as driver’s license, passport, etc. An image of that document must also be submitted through the online CTA reporting portal.
The Corporate Transparency Act applies to privately held business entities, including LLCs commonly used by small businesses. Publicly traded companies, most financial services providers, and certain large entities are exempt. Also exempt from the CTA are sole proprietorships and tax-exempt entities registered with the IRS.
“While the CTA targets illegal activities, it increases administrative burdens on small businesses,” Mark Krosse of SCORE, the nation’s largest network of volunteer, expert business mentors, said on Tuesday. “Small business owners must understand these requirements and take steps to comply.”
Penalties for noncompliance include civil fines of up to $500 per day as the violation continues. Willful noncompliance can also include criminal penalties in the form of fines up to $10,000, imprisonment of up to two years, or both.
