How Does The Corporate Transparency Act Affect You and Your Business?

Keeping track of ever changing legislation can be a challenge for business owners.  Many business owners are usually aware that they must comply with numerous federal, state and local regulations.  Making matters even more difficult is the fact that new laws are frequently enacted all of the time. This typically requires businesses to quickly familiarize themselves with and often take direct action to avoid any costly repercussions for failing to comply.

In 2021, Congress enacted the Corporate Transparency Act (CTA) with the goal of addressing illicit financial activity.  In 2024, most registered business entities must file a beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN).  Here’s what business owners should know.

What is the Corporate Transparency Act?

Under the CTA, many companies doing business in the United States are required to report information about their business and the individuals that own or control it to FinCEN.  

The CTA aims to combat illegal activity such as tax fraud, money laundering, and financing for terrorism by obtaining more ownership information for certain types of United States businesses. Under the new legislation, businesses that meet certain criteria must submit a BOI report to FinCEN that provides details identifying individuals who are associated with the reporting company.

FinCEN’s reporting rule has named 23 types of companies that may qualify for exemption from filing a BOI report.  Some key types of businesses that could be exempt are banks, credit unions, tax-exempt entities, investment companies, certain large entities of more than 20 employees, and accounting firms. 

Sole Proprietorships and General Partnerships are typically not required to report business ownership information since they are not registered legal entities. Companies in certain industries that are already heavily regulated by the federal government may also be exempt from filing a BOI report.  

Employers should review the “Small Entity Compliance Guide” with their legal counsel to determine if they need to file a report based on their industry type.

What is Beneficial Ownership Information?

According to FinCEN, beneficial owners include any individuals who, directly or indirectly,  exercise substantial control over the company or own or control at least 25% of the company’s ownership interests.

Companies registered or established after January 1, 2024 must provide information regarding the business, the beneficial owners, and any individuals who formed the company (“company applicants”). Companies registered or established prior to January 1, 2024 must provide information regarding only the business and any beneficial owners.

All reporting companies must provide their legal name and trade names, their current U.S. address, IRS taxpayer identification number(TIN) and employer identification number (EIN), and note the jurisdiction where they were formed or registered.

How to File a BOI Report

Companies registered or established prior to January 1, 2024, must file their report by January 1, 2025. Companies registered or established between January 1, 2024, and January 1, 2025, must file their report within 90 calendar days after receiving notice that their company’s registration is effective. Companies registered after January 1, 2025, must file their report within 30 days after their registration becomes effective.

Companies must register and file their report online through the FinCEN site here. There is no fee to apply and file reporting. It is recommended to consult with legal counsel when filing the BOI report to ensure it is completed on time and to FinCEN’s standards.

There are no annual reporting requirements at this time for filing updated BOI reports. However, if any information previously filed on a report changes, companies will need to file a new report with the updated information.

Failure to comply with reporting requirements under the CTA could result in civil and criminal penalties for willful failure to report required information. Violations can carry a civil penalty of up to $500 for each day that a violation has not been remedied, a fine of up to $10,000 and/or imprisonment for up to two years. 

Justworks can help with certain employment-related compliance. We’re here to support you and your small business, get started today.