Small business owners and professionals running private practices have to make sure that their companies comply with all applicable state and federal regulations. The rules that govern businesses do sometimes change. Those who do not track business regulations may unintentionally violate the law and could put themselves and their company at risk of numerous consequences. The Corporate Transparency Act (CTA) went into effect at the beginning of 2024.
This new law has major implications for businesses with opaque structures. Limited liability companies (LLCs) and other businesses where ownership is not readily obvious are subject to certain rules established through the CTA. Small business owners may need to file special paperwork in the next few months or may be at risk of non-compliance penalties.
What does the CTA require?
The goal of the CTA is to allow federal regulatory authorities to connect specific businesses with specific individuals. Doing so can help prevent fraud, money laundering and other financial crimes.
Companies subject to the CTA must file a report with the Financial Crimes Enforcement Network (FinCEN). That report must include the identifying information of anyone with a beneficial ownership interest (BOI) in the company.
The CTA defines a BOI as a 25% or greater ownership interest in the company. Organizations also have to disclose the names of those who filed company formation paperwork or instructed someone else during the formation process.
They have to provide the full name and current primary residential address of those with a BOI. The report also needs to include photocopies of state-issued identification such as driver’s licenses or passports.
New companies have to file the BOI report within the first 30 days of a company’s existence. Existing companies have to file the initial report by the first day of January, 2025.
What are the penalties for non-compliance?
Businesses that do not file the appropriate BOI report with FinCEN are at risk of enforcement actions. The company may be subject to civil fines of as much as $500 per day that the business is in violation of the CTA.
The owners or executives responsible for that non-compliance might be at risk of prosecution. The penalties possible for the criminal charges associated with CTA violations include up to $10,000 in fines and the possibility of two years in jail.
Business owners may need help reviewing changing regulations and filing appropriate paperwork to remain legally compliant. Having legal support can help mitigate the various forms of risk associated with modern business ownership.