The Corporate Transparency Act: How it affects 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 beneficial ownership information is, and how your small business will be affected will help keep your business in compliance to avoid penalties and other consequences.

What is the Corporate Transparency Act?

Business owners discussing the Corporate Transparency Act (CTA) and BOI reports

Congress passed the Corporate Transparency Act as part of the Anti-Money Laundering Act in 2021 to help law enforcement investigate financial crimes. 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 the use of shell companies.

What businesses are subject to the Corporate Transparency Act?

All domestic businesses created by registering with a state are subject to the Corporate Transparency Act. This includes corporations, LLCs, limited partnerships, and limited liability partnerships (LLPs) to name a few. Foreign businesses that make a filing with any state are also subject to the CTA.

Sole proprietors and general partnerships, which are businesses that are 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 will be required to report Beneficial Ownership Information in the first year of the program.

What businesses are exempt from the Corporate Transparency Act?

There are two main categories of businesses that 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 owner(s) and individuals who control a company, according to FinCEN.

Under the Corporate Transparency Act, ownership includes those that own 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 that either directly or indirectly lead, determine, or influence the company’s decisions. Generally, this includes the business’ senior officers and managers as they tend to have substantial control.

Learn more about Beneficial Ownership Information Reports.

NEW in 2024 – Beneficial Ownership Info Reporting service

Avoid penalties and stay compliant with the Corporate Transparency Act

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 to take in, and 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 >>

Carl Breedlove - The Tax Institute H&R Block

About the Author

Carl Breedlove is a lead tax research analyst at the Tax Institute. He specializes in business, rental property, and state taxation. Carl is a University of Missouri-Kansas City School of Law graduate with a JD and an LLM in tax.

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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.


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