As a small business owner, staying informed about new regulations is crucial to ensuring your company remains compliant and avoids potential penalties. One such regulation is the Corporate Transparency Act (CTA), taking effect this year. This act introduces new reporting requirements for many small businesses, and it’s essential to understand how it may impact your organization.

The CTA requires certain business entities, referred to as “reporting companies,” to submit Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This requirement applies to corporations, LLCs, and other entities formed by filing documents with a secretary of state or similar office under state law. Small businesses with fewer than 20 employees or less than $5 million in annual reported revenue, and a physical presence in the United States are generally subject to these reporting obligations.

However, some exceptions exist. Entities registered with the Securities Exchange Commission (SEC), banks, credit unions, tax-exempt non-profit corporations, and their subsidiaries may be exempt from the CTA’s reporting requirements. Additionally, businesses that employ more than 20 people full-time in the U.S. and generate over $5 million in annual reported revenue may also be exempt.

The purpose of the CTA is to combat illegal activities, such as money laundering, by creating a database of beneficial ownership information accessible to law enforcement agencies. While the government has assured that this information will be kept confidential, it’s important to note that FinCEN may disclose the data in certain circumstances, such as when requested by federal agencies for national security or law enforcement purposes.

To ensure compliance with the CTA, small business owners should take proactive steps to review their corporate governance documentation, ownership structure, and other entity details. Seeking guidance from experienced legal professionals can help you navigate the complexities of the act and avoid potential pitfalls.

By staying informed and taking action now, owners of existing small businesses can position themselves for a smooth transition when the CTA goes into effect in 2025. Newly created entities in 2024 have 90 days to report.  Don’t wait until the last minute to address these new requirements, as doing so may lead to increased costs and difficulties in securing the necessary assistance. Be proactive, seek guidance, and ensure your business is ready to meet the challenges and opportunities that lie ahead.

For more details, visit Small Business Resources | FinCEN.gov.

Wegman Hessler Valore specializes in business law for business leaders, applying legal discipline to solve business problems to help leaders run smarter. For over 50 years, this Cleveland law firm has provided full-service strategic legal counsel for closely held businesses, corporations, and individuals. Practice areas include: business law; municipal law; litigation; corporate governance; estate planning and wealth protection; intellectual property; HR and employee matters; commercial real estate; business acquisition, and more. Get in touch to learn more.

Visit wegmanlaw.com or call us at (216) 642-3342.

Copyright © Wegman Hessler Valore. This information is for educational purposes. It does not reflect an attorney-client relationship with the author(s) or the firm. This information should not be used as a substitute for professional legal advice in specific situations.