It’s not often that we do a blog that mentions small businesses and money laundering in the same sentence, but we feel it’s important to keep you out of hot water.

Without much fanfare, the federal government rolled out a new reporting requirement on Jan. 1 that affects nearly 32 million small businesses across the country.

The Corporate Transparency Act (CTA) ensures that business owners aren’t engaging in tax fraud, money laundering or financing terrorism. In short, the feds want to know if they are running a “shell” corporation.

The Corporate Transparency Act was passed in 2021 with broad congressional support. But this is the first year the vast majority of small businesses will need to file a report through the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Treasury.

If you’re a corporation, limited liability company (LLC), limited partnership or any other structure that files through the Secretary of State’s office, you have until Jan. 1, 2025 to get your paperwork in. Foreign companies and tribal businesses registered to do business in the U.S. must also file. Sole proprietorships and businesses with an informal partnership do not.

Companies with more than 20 full-time employees operating a physical office in the U.S. and generating $5+ million in annual revenue don’t need to apply. Inactive or dormant companies are also excused if they haven’t sent or received more than $1,000 directly or indirectly, were in existence on Jan. 1, 2020, and are not owned by a foreign person.

If your business was created after Jan. 1, 2024, you have 90 days to file from the date your company was registered to comply with the Corporate Transparency Act. If you make changes to ownership in the years to come, you have 30 days to file the update.

Who needs to file

Two types of Beneficial Owners need to be included in your Beneficial Ownership Information Registry (BOI) filing.
There’s the “direct owner,” who exercises substantial control over the company or owns/controls at least 25% of its operations. And then there’s the “indirect owner,” who has less than 25% ownership. As every business is different, you may have to do a bit of detective work to figure out who needs to be named in your filing.

Owners (direct or indirect) with substantial control typically include:

  • Senior officers (President, CEO, COO, CFO, General Counsel or similar officer).
  • Any individual(s) with the authority to appoint or remove senior officers or a majority of directors of the reporting company.
  • Any individual who has important decision-making authority over the business, finances, or the entity’s structure.
  • Individuals who have any other form of substantial control over the reporting company (meant to be a catch-all for unique situations).

The board of directors and managers of an LLC are not explicitly mentioned, but you may want to include them anyway, just to be safe. There is some good news in all this. Minor children, employees who are not senior officers, and those named in a will as a future business inheritor are not included in the filings.

Required Documentation

Here’s a breakdown of the company information you will need to have on hand to file:

  • The full legal name and all trade names or DBA (doing business as) names for the company.
  • Actual street address for the company’s principal place of business (not a P.O. Box or lawyer’s or adviser’s address).
  • The state or Tribal jurisdiction where the company was formed or first registered.
  • Your Taxpayer Identification Number (TIN) or Employer Identification Number (EIN).
  • An identity document from an issuing jurisdiction, such as filed Articles of Incorporation or Organization, including an image of that document.

For each Beneficial Owner of the company, either direct or indirect, you will also need each owner’s:

  • Full legal name (not just initials)
  • Date of birth
  • Home address (not P.O. Box or adviser/lawyer’s address)
  • Photocopy (PDF) of the individual’s U.S. passport or driver’s license

Here’s a guide to help you to clarify your own situation.

Family businesses affected

If you have a small family business, this registration requirement could include almost every member of your family who isn’t a minor, at least any that have a vested interest in the business, receive any profits or financial perks, or own real estate. Ownership can also include joint arrangements, such as trusts and informal partnerships.

Only one person needs to serve as the applicant, but they will need to be able to provide all the information listed above for each owner.

Need privacy?

If you worry about your privacy, you can apply for a FinCEN identifier, a unique code that identifies you without having to use all your own information each time you register a new business or update an existing one. The identifier website will walk you through the process.

The jury is still out

If this all seems daunting, it is, especially for small businesses with little to no administrative help. But as long as it’s in force, you don’t want to ignore this new report requirement. While there are already lawsuits contesting its legality, the courts could take years to decide the fate of the CTA. In the meantime, it’s wise to file to avoid civil penalties of up to $500 per day for intentionally failing to report.

Additional information can be found on the FinCEN website.