Business ownership is a fulfilling and exciting endeavor, but it also comes with rules, responsibilities, and reporting requirements that can be hard to track. If you own a small business or have a Trust that owns a business interest, you’ll need to comply with the Corporate Transparency Act (CTA).

Beginning January 1, 2024, the Corporate Transparency Act (CTA) will require small companies to disclose the names of any owners who hold a 25% or more ownership interest in the company, as well as any individuals who exercise significant control over the company’s activities. This new rule also applies to Trusts that own or control a company.

The Corporate Transparency Act (CTA) was enacted in 2020 to enhance corporate transparency and prevent money laundering, terrorist financing, and other financial crimes. By requiring businesses to report information about their owners and controllers, the Act seeks to make it easier to identify “shell” corporations – companies that don’t actually perform an active business or trade and which are often used to move money around illegally.

Since money laundering and terrorist financing are usually conducted using small businesses, the Act largely aims to collect information on these companies, so entrepreneurs and small business owners should take extra care to meet the filing requirements.

In order to comply, a business must file an annual report to the Financial Crimes Enforcement Network (FinCEN) with the following information on each owner or controller of the business:

●     Business name and current business address

●     State in which the business was formed and its Entity Identification Number (EIN)

●     Owner/controller’s name, birth date, and address

●      Photocopy of a government-issued photo ID (such as a driver’s license or passport) of every direct or indirect owner or controller of the company

If a company doesn’t file an annual report, it may be penalized with a $500 fine for every day the report is late and its owners could even face imprisonment for up to two years.

If your company’s formation occurred on or before December 31, 2023, you have until January 1, 2025, to file its CTA report.

If your company was created after January 1, 2024, you’ll need to file your report within 30 days of the company’s creation.

This means if you’re thinking of creating a new company or changing the entity structure of an existing company, doing so before January 1, 2024, will give you a year-long grace period to file the report. Otherwise, once January 1 rolls around, it’ll be too late to take advantage of this extension.

The extension provides a valuable window of time for business owners to understand the reporting requirements thoroughly, gather the necessary information, and engage with legal professionals to ensure they’re in compliance with the Act without the pressure of a 30-day deadline.

The Act’s reporting rules seem straightforward, but the penalties for non-compliance can be substantial. Creating your new business entity by year-end provides a cushion against potential penalties and risks associated with overlooking or misunderstanding reporting requirements. It’s a proactive step that gives your business the advantage of time.

There is no fee for the annual report, and it may be filed electronically with FinCEN.  The system and report are currently under development and won’t be ready to accept submissions until January 1, 2024.