The Corporate Transparency Act (CTA) has introduced new reporting requirements for many small businesses in the United States. These businesses face a deadline of January 1, 2025, to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
The CTA is designed to combat money laundering and other illegal activities by increasing transparency in the ownership of LLCs, corporations, and similar entities. It mandates that small business entities disclose details about their "beneficial owners" to FinCEN, which is part of the U.S. Department of the Treasury.
According to the act, "beneficial owners" are individuals who own at least 25% of a business entity or have significant control over it, including senior officers. This requirement applies regardless of actual ownership stakes. Detailed guidance can be found on FinCEN's website under the Small Entity Compliance Guide: Beneficial Owner Reporting Requirements.
New businesses created or registered in 2024 have a 90-day window to submit their reports. FinCEN has been accepting these submissions throughout the year. In contrast, businesses that existed before January 1, 2024, have until January 1, 2025, to comply with this requirement.
Businesses must provide detailed information about their beneficial owners when filing with FinCEN. This includes full legal names, dates of birth, addresses, and a unique identifying number from an official document such as a driver's license or passport. An image of this document must also be uploaded via the online CTA reporting portal.
The CTA affects privately held business entities like LLCs commonly used by small businesses but exempts publicly traded companies and most financial services providers. Sole proprietorships and tax-exempt entities registered with the IRS are also exempt from these requirements.
Mark Krosse from SCORE commented on Tuesday that while "the CTA targets illegal activities," it also "increases administrative burdens on small businesses." He emphasized that "small business owners must understand these requirements and take steps to comply."
Failure to comply with these regulations could result in civil fines up to $500 per day for ongoing violations. Willful noncompliance may lead to criminal penalties including fines up to $10,000 and imprisonment for up to two years.
