What is the Corporate Transparency Act (CTA) and How Does it Affect Your Small Business?

As a small business owner, you may be impacted by a new law called the Corporate Transparency Act (CTA) and its corresponding Beneficial Ownership Information reporting requirements. Understanding the CTA, what a beneficial ownership information report is, and how your small business will be affected will help keep your business in CTA compliance to avoid penalties and other consequences.

What is the Corporate Transparency Act?

Congress passed the Corporate Transparency Act as part of the Anti-Money Laundering Act in 2021 to help law enforcement investigate financial crimes and illicit activity. The CTA requires certain businesses to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), an agency within the United States Treasury Department. The stated purpose of this new requirement is to prevent “bad actors” from hiding their identities through shell companies.

What businesses are subject to the Corporate Transparency Act and beneficial ownership reporting?

All domestic businesses created by registering with a state are subject to the Corporate Transparency Act. This includes corporations, limited liability companies (LLCs), limited partnerships, limited liability partnerships (LLPs), or other similar entities, to name a few. Foreign businesses filing with any state are also considered reporting companies subject to CTA compliance.

Sole proprietors and general partnerships, businesses not created by registering with any state, are NOT subject to the Corporate Transparency Act. In addition, there are a couple of other exemptions, as explained in the next section.

FinCEN estimates that over 32 million businesses must report Beneficial Ownership Information in the program’s first year. Businesses subject to CTA reporting can stay compliant by filing the required information by the deadline. The exact deadline depends on when the business was formed.

What businesses are exempt from the Corporate Transparency Act?

Two main categories of businesses are exempt from Corporate Transparency Act requirements.

1. Businesses that are already federally regulated, such as financial institutions, publicly traded companies, and insurance companies
2. Large businesses with at least 20 full-time employees, over $5 million in gross receipts, and a substantial U.S. presence

What is beneficial ownership information?

As the name implies, Beneficial Ownership Information is facts about the owner(s) and individuals who control a company, according to FinCEN.

Under the Corporate Transparency Act, a beneficial owner refers to anyone who owns 25% or more of a company either directly or indirectly. This includes stockholders, partners, LLC members, and owners of a business that owns another business subject to BOI reporting.

Now, let’s talk about what constitutes control of a company. Control for this purpose refers to those directly or indirectly leading, determining, or influencing the company’s decisions. Generally, this includes the business’ senior officers and managers, who tend to have substantial control. Beneficial owners are different from the company applicant. A company applicant is simply the individual who files the paperwork to create or register a business entity.

Learn more about Beneficial Ownership Information Reports with examples of who is considered a beneficial owner.

What should I do now?

The Corporate Transparency Act ushered in a new wave of reporting regulations for small business owners. It is a lot of information. It is understandable if you feel confused. If your small business must comply with the new Corporate Transparency Act rules, reading this article is a good first step.

Next, check out our guide to Beneficial Ownership Information Reporting. As of January 2024, the FinCEN Beneficial Ownership Information reporting system is live. You may also want to seek the advice of an attorney who can review your specific circumstances and guide your decisions to confirm that you are doing what’s right for you.

Overwhelmed by the process of filing? Unsure if you need to file to begin with? Block Advisors Business Ownership Information Reporting service can help you understand the ins and outs of the new compliance rules.

Learn more about the Beneficial Ownership Information Reporting service >>

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This article is for informational purposes only and should not be construed as legal advice. You may want to seek the advice of an attorney to evaluate all relevant considerations.