The federal and state laws regulating businesses change frequently. As the economy grows and adapts to new technology, new regulations are necessary. Federal lawmakers recently enacted the Corporate Transparency Act (CTA). The purpose of the CTA is to fight money laundering and funding for terrorism by connecting individuals to different businesses.
Many types of companies do not have clear connections to individual business owners. Corporations, for example, may have numerous shareholders who influence the organization. Limited liability companies (LLCs) and other businesses with opaque structures can easily conduct transactions to launder money or transfer resources to inappropriate entities.
The CTA requires mandatory reporting as a way of connecting individuals to businesses. Many existing companies have an upcoming deadline that they need to comply with to avoid violating the CTA.
What does the CTA require?
Many businesses with unclear ownership must file a report with the Financial Crimes Enforcement Network (FinCEN) identifying parties with a beneficial ownership interest (BOI). According to the CTA, a BOI consists of a 25% or greater ownership interest in the organization. The CTA also requires the disclosure of the identity of the individual who filed the paperwork to form the business and anyone who oversaw that process.
Following litigation, businesses that are part of the National Small Business Association (NSBA) may be exempt from this reporting requirement. Many other companies have to submit a BOI report before the end of the year. New startups now have to file a report with FinCEN within the first 30 days of their formation.
Existing businesses benefited from a temporary grace period when the law went into effect on January 1st, 2024. They have until the first of the year in 2025 to submit the necessary report. Non-compliance can lead to both civil penalties and criminal prosecution.
Organizations may be subject to fines of as much as $500 per day for every day that they remain non-compliant. The individuals connected to that violation could also be at risk of prosecution. A conviction for a violation of the CTA could lead to up to $10,000 in fines and incarceration in the worst-case scenario.
Tracking how business laws change can help those running organizations better ensure their compliance with the law. Otherwise, the CTA and other new laws can inspire major consequences for those who fail to comply with regulatory standards.