Attention Small Business Owners:
The Corporate Transparency Act (the “CTA”) requires every business operating in the United States to file certain ownership information, unless otherwise exempt. The CTA went into effect on January 1, 2024 and is estimated to affect approximately 32 million businesses operating in the United States.
The CTA mandates that nearly all business owners report personal identifying information to FinCEN (the regulatory agency tasked with enforcing the CTA) or face fines and possible imprisonment. The CTA broadly encompasses any entity that is created by filing a document with a secretary of state or similar office. Here are a few examples of businesses that may be required to file under the CTA:
• Your side hustle driving for Uber or Instacart
• Your teenager’s car-washing service
• Your solely owned law firm
After a business submits its initial filing, in the event any of the information in the filing changes (such as a business owner changes his or her residential address or obtains a new driver’s license), a subsequent filing is required within 30 days of such change.
If you own or have substantial control over the operations of a business, you need to evaluate if your business is required to file. Given the broad scope of the CTA, it is prudent to initially presume your business is required to report and then evaluate if your business fits within any exemption (such as being a sole proprietorship, non-profit or highly regulated financial institution). Even if a business concludes it is exempt from reporting, it should establish compliance measures to ensure it quickly recognizes if such exemption fails to apply. The CTA requires a formerly exempt business to report to FinCEN within 30 days of such business no longer satisfying an exemption.
To reiterate, all businesses need to assess their obligations under the CTA and implement controls and procedures to ensure current and future compliance with the CTA. All newly formed businesses are required to adhere to the CTA immediately, and all businesses formed prior to January 1, 2024 are required to submit their initial filing by year-end. Failure to comply with the CTA will result in penalties. For more information about the which businesses are exempt and what information will be required for filing, please click here. If a business is unsure about the applicability of the CTA, it should seek professional advice before the applicable deadline passes.
