Corporate Transparency Act: New Beneficial Ownership Reporting Requirements for Small Businesses
The Corporate Transparency Act (CTA), enacted in 2021, introduces significant changes to ownership reporting for small businesses in the United States. Designed to combat illicit financial activities, the CTA mandates that many corporations, limited liability companies (LLCs), and similar entities disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).
Recent Legal Developments
Initially, the CTA's enforcement faced legal challenges. In December 2024, a federal judge in Texas issued an injunction, temporarily halting the law's implementation. However, on January 23, 2025, the U.S. Supreme Court lifted this injunction, allowing the CTA's provisions to take effect. Following this decision, FinCEN announced that the reporting requirements are back in effect, setting a new compliance deadline of March 21, 2025, for most companies. Additionally, businesses impacted by Hurricanes Milton, Helen, Debby, Beryl, or Francine have been granted an extended deadline of April 23, 2025, to submit their Beneficial Ownership Information (BOI) reports.
Who Needs to Report?
The CTA's reporting obligations apply to a wide range of entities, including:
Domestic Reporting Companies: Corporations, LLCs, and other entities created by filing a document with a secretary of state or similar office under the laws of a state or Indian tribe.
Foreign Reporting Companies: Entities formed under the laws of a foreign country that are registered to do business in the United States.
Certain entities are exempt from reporting, such as publicly traded companies, banks, and tax-exempt organizations. It's essential for businesses to assess their status to determine if they fall under the reporting requirements.
What Information Must Be Reported?
For each beneficial owner, reporting companies must provide:
Full Legal Name
Date of Birth
Residential or Business Address
Unique Identifying Number: From an acceptable identification document (e.g., non-expired U.S. driver's license, passport) along with an image of the document.
Additionally, companies must report information about themselves, including legal name, any trade names, business address, and jurisdiction of formation or registration. (fincen.gov)
How to Submit Reports
Reports are to be filed electronically through FinCEN's secure filing system. The system is designed to be user-friendly, and there is no fee for submitting reports. FinCEN provides a Small Entity Compliance Guide to assist businesses in understanding and fulfilling their reporting obligations.
Implications for Small Businesses
Non-compliance with the CTA can result in significant penalties, including fines and potential criminal charges. It's crucial for small business owners to:
Determine Applicability: Assess whether their business structure requires them to report under the CTA.
Gather Necessary Information: Collect the required details for all beneficial owners.
Meet the Deadline: Ensure that reports are submitted by the deadline of March 21, 2025, deadline. For those impacted by Hurricanes Milton, Helen, Debby, Beryl, or Francine, the extended deadline is April 23, 2025
