Small Businesses Face New Reporting Mandate Under Corporate Transparency Act

From January 1, 2024, a significant number of small businesses in the United States are obligated to report the identities of their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), as stipulated by the Corporate Transparency Act (CTA). This act, which was passed in 2021, aims to prevent the misuse of business entities for illicit activities such as money laundering and tax evasion. The CTA applies to corporations, limited liability companies, and other entities that are created through a filing with a state office or are foreign entities doing business in the U.S. However, there are exemptions for businesses that meet certain criteria, including having more than 20 employees, annual gross receipts exceeding $5 million, and a physical office within the U.S.

The reporting process is designed to be straightforward and can be completed online without a fee. Required information includes the business’s EIN, name, state of registration, and detailed identification information for each beneficial owner. To ease the reporting burden, entities and individuals may obtain a unique FinCEN identifier. The CTA also allows for third-party service assistance, although fees may be charged by these providers. Non-compliance with the CTA carries severe penalties, including daily civil fines and the possibility of criminal charges, underscoring the importance of adherence to these new regulations.

Businesses must remain vigilant against fraudulent inquiries posing as official requests from FinCEN or third-party providers, as scams have been reported. The enactment of the CTA marks a significant shift in the regulatory landscape for small businesses, emphasizing transparency in ownership to combat financial crimes. Businesses, whether newly established or existing, must ensure compliance to avoid substantial penalties, highlighting a critical need for awareness and action in navigating these requirements.