The Corporate Transparency Act & Small Businesses: New Reporting Requirements Explained

Beginning January 1, 2024, a significant update in reporting requirements will come into effect. This change mandates that roughly 32 million small businesses submit a Beneficial Ownership Information (BOI) report to the Financial Crimes Enforcement Network (FinCEN) under the newly enacted Corporate Transparency Act (CTA). FinCEN has guided who needs to report, reporting deadlines, and the essential details required in these reports.

Small business proprietors must familiarize themselves with the CTA’s stipulations and establish efficient reporting methods to circumvent the strict criminal and civil penalties for non-compliance.

The Role Of The Corporate Transparency Act For Small Businesses

The Corporate Transparency Act was legislated by Congress to mitigate risks like money laundering, tax evasion, terrorism financing, and other illicit financial dealings often channeled through small businesses. By gathering key information about business owners and stakeholders in these businesses, the Act aims to amplify efforts in combating these unlawful activities.

Reporting Requirements Under the Act

All corporations, limited liability companies (LLCs), and similar entities registered with the Secretary of State or any equivalent body are mandated to file a BOI report, except when exempt. This includes entities originating from overseas but operating in the U.S.

The CTA specifies 23 categories of entities that are exempt, primarily larger corporations under existing state or federal oversight, including:

• Publicly traded companies
• SEC-reporting entities
• Banks, credit unions
• Tax-exempt, insurance, and accounting firms

Additionally, “large operating companies” meeting certain criteria in employee count, physical U.S. presence, and sales volume are also exempt from these reporting requirements.

What Should Be Included In BOI Reports?

BOI reports should encapsulate detailed information such as:

• The entity’s complete legal name
• Operational trade names
• Business address
• Jurisdiction of formation
• Taxpayer identification number

Furthermore, any individual owning at least 25% of the company’s assets needs to submit a detailed ownership report, including personal identification details. This requirement extends to ‘company applicants’ for entities formed post-January 1, 2024.

Does the Information Provided In BOI Reports Remain Confidential?

The information submitted to FinCEN remains confidential and is not publicly accessible. However, specific entities like federal agencies, state law enforcement (with court orders), the Treasury Department, financial institution regulators, and certain foreign authorities may access this information under specified conditions.

The CTA’s Impact On Your Small Business

For existing businesses falling under the Corporate Transparency Act‘s purview, the initial BOI report is due before January 1, 2025. For businesses established from January 1, 2024, onwards, the report must be filed within 30 days of their official establishment. It’s important to keep these reports up-to-date, with any changes reported within a month.

Filing for BOI reports is set to start on January 1, 2024, via the FinCEN website. Business owners and managers need to evaluate if they fall under the reporting category, maintain necessary information, and devise a strategy for their initial report submission.

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