Corporate Transparency Act Imposes New Small Business Reporting Requirements for 2024

January 26th, 2024

Small business owners will have one more item on their compliance to-do list now that the Corporate Transparency Act (“CTA”) has taken effect.

The CTA,[1] enacted as part of the Anti-Money Laundering Act of 2020, places new reporting requirements on most small business entities in an effort to expose illegal activities, including the use of shell companies to launder money or conceal illicit funds. Around 30 million small businesses will be impacted by the law.

Why was the CTA passed?

The CTA was passed as part of the National Defense Authorization Act for Fiscal Year 2021. It directs the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to gather information from private companies about their owners and controlling persons. Acting Director Himamauli Das said, “FinCEN is taking aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing.”[2]

To counter the risks allegedly posed by anonymous shell companies, the CTA mandates the creation of a federal database that contains certain information about small business entities.

Small business organizations such as the National Small Business Association (NSBA) and the National Federation of Independent Businesses (NFIB) oppose the CTA, calling it cumbersome, intrusive, overly punitive, and unconstitutional. NSBA states that small businesses are unfairly impacted because they usually do not have compliance teams or staff attorneys.[3]

What are the CTA’s reporting requirements?

Effective January 1, 2024, the CTA requires that certain businesses disclose to FinCEN information about the company, its beneficial owners, and in some cases, the person who assists in the formation of the company, also known as the “company applicant.”

Reporting companies are defined as any company with twenty or fewer employees that is formed by filing paperwork with the Secretary of State or equivalent office. Typically, this includes corporations and limited liability companies. Depending on the state, it could also include other business entities.

Reporting companies that are created or registered prior to January 1, 2024, have until January 1, 2025, to file an initial report. Reporting companies created or registered after January 1, 2024, and before January 1, 2025, will have ninety days after creation or registration to file a report. Reporting companies created on or after January 1, 2025, will have 30 days to submit the reports to FinCEN.

Does the CTA require my business to report?

The CTA applies to companies that are created by filing a document with a state authority. As mentioned, this includes corporations and limited liability companies. In Minnesota, it could also include cooperatives, cooperative associations, limited liability partnerships, and limited partnerships. In addition, the CTA applies to non-U.S. companies that are registered to operate in the United States.

NFIB estimates that, based on these rules, 30 million small businesses will have to report to FinCEN. The CTA exempts around two dozen categories of companies, including companies that

  • are publicly-traded;
  • have more than twenty full-time U.S. employees;
  • filed a previous year’s tax return showing more than $5 million in gross receipts or sales;
  • have an operating presence at a physical U.S. office location;
  • operate in a regulated industry, such as banking, utilities, or insurance, that already imposes similar reporting requirements; or
  • are subsidiaries of exempt organizations.

The exemptions, which generally include larger companies that are already subject to regulation, underline the primary purpose of the CTA: to combat money laundering and other illicit activities conducted via small, private, and anonymous shell companies.

What information must be provided in the BOI Reports?

The CTA requires three categories of information to be reported: company, owners, and applicants.

  • Domestic reporting companies created before January 1, 2024, must provide information about the company and its beneficial owners.
    • Beneficial owner is defined in the CTA as an individual who exercises “substantial control” over the reporting company or has an ownership interest of at least 25 percent. Company senior officers, directors, and others who make significant decisions on behalf of the company may meet this statutory definition of “substantial control,” although the broad definition may cause confusion in some instances.
  • Domestic reporting companies created on or after January 1, 2024, must provide information about the company, its beneficial owners, and its company applicants.
    • A company applicant generally is the individual who files the formation document with state authorities for the reporting company. This person may be a business partner, attorney, or accountant.

The information to be filed with FinCEN is called a Beneficial Ownership Information (“BOI”) Report. The reporting company, beneficial owner, and company applicant must report the following information in the BOI Report:

  • The reporting company must provide its name and any alternative or assumed (“DBA”) names, the address of its principal place of business, the state of formation, and its taxpayer identification number.
  • Each beneficial owner of a reporting company must furnish their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification (ID), along with a copy of the ID document.*
  • A company applicant is required to submit the same information as a beneficial owner.*

* In lieu of submitting the required information to a reporting company, beneficial owners and company applicants may apply for a FinCEN identification number and submit their FinCEN identifier instead. To obtain a FinCEN identifier, the individual must provide FinCEN with the same four pieces of personal information and image verification that is required for the BOI Report. After an individual submits an application, the individual will immediately receive a FinCEN identifier unique to that individual. A reporting company may also request a FinCEN identifier when it submits a BOI Report.

What happens after filing the initial BOI Report?

If there is any change to the previously reported information about the reporting company or its beneficial owners, the reporting company must file an updated BOI report no later than 30 days after the date on which the change occurred. This includes registering a new DBA, change in business address, change in beneficial owners, change to a beneficial owner’s personal information, etc.

If there is any change to the previously reported information submitted in an individual’s FinCEN identifier application, the same 30-day timeline applies.

A reporting company is not required to file an updated report for any changes to previously reported personal information about a company applicant. A reporting company is also not required to file an updated report if the company is dissolved or terminated.

Who has access to FinCEN BOI Reports?

The CTA authorizes FinCEN to disclose BOI information to five categories of recipients:[4]

  • U.S. federal, state, local, and tribal government agencies
  • Foreign law enforcement agencies, judges, prosecutors, and other authorities
  • Financial institutions
  • Federal regulators
  • U.S. Department of the Treasury

FinCEN may only disclose BOI information “under specific circumstances”: there are more stringent requirements for agencies other than those engaged in national security, intelligence, and law enforcement activities. There are also restrictions on how the information may be used and how it must be secured.

Some small business owners have expressed concerns about the privacy implications of the CTA. The NSBA has filed a lawsuit challenging the CTA’s constitutionality, in part on privacy grounds over sharing “sensitive information” with the government.[5]

Are there penalties for noncompliance with the CTA?

Penalties for noncompliance may be steep. Willingly providing false information (including false identifying documents) to FinCEN, or failing to report complete BOI information, can result in:

  • Fines of $500 per day, up to $10,000
  • Imprisonment for up to two years

Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submits an updated report correcting the inaccurate information within ninety days.

Get help with CTA reporting requirements.

Understanding how the CTA applies to you, how it will affect your business, and what you must do to comply introduces new burdens that you may have scarce resources to address.

Terms like “beneficial owner” and “substantial control” may seem vague and confusing, further complicating compliance efforts. But compliance is critical for business owners who want to avoid possible sanctions.

We can help you determine whether the CTA applies to your business and the steps needed to meet its reporting requirements. With the law in effect now, we encourage you to reach out and start planning your business’ CTA compliance strategy.

Interested in learning more? Contact us here. Subscribe to our YouTube channel, follow us on Facebook or sign up for our quarterly newsletter.

[1] National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, 134 Stat. 3388 (Jan. 1, 2021).

[2] Press Release, U.S. Dep’t of the Treasury, Financial Crimes Enforcement Network, FinCEN Issues Proposed Rule for Beneficial Ownership Reporting to Counter Illicit Finance and Increase Transparency (Dec. 7, 2021), https://www.fincen.gov/news/news-releases/fincen-issues-proposed-rule-beneficial-ownership-reporting-counter-illicit.

[3] National Small Bus. Ass’n, The Corporate Transparency Act, https://www.nsba.biz/cta (last visited June 27, 2023).

[4] Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77404 (proposed Dec. 16, 2022).

[5] Dave LaChance, Small business group sues over federal ownership database, cites concerns over sharing ‘sensitive’ info, Repairer Driven News (Nov. 17, 2022), https://www.repairerdrivennews.com/2022/11/17/small-business-group-sues-over-federal-ownership-database-cites-concerns-over-sharing-sensitive-info/.

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