Corporate Transparency Act: What Every Business Owner Needs to Know to Avoid MAJOR Penalties in 2025

What Is the Corporate Transparency Act and Why Was It Enacted?

The Corporate Transparency Act (CTA), first introduced by Congress on January 1, 2021, as part of the National Defense Authorization Act, went into effect on January 1, 2024. Aimed at preventing money laundering, terrorist financing, corruption, and tax fraud, the CTA requires corporations, limited liability companies, and other entities formed or registered in the United States to submit a Beneficial Ownership Interest Report (BOIR). The BOIRs, which disclose the individuals who own or control these entities, must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

What Type of Entities Are Considered a "Reporting Company" Under the CTA?

If you’re a business owner, you may be wondering whether the CTA applies to you. Generally, the CTA applies to most types of entities formed or registered in the United States, including:

• Corporations

• Limited Liability Companies (LLCs)

• Similar entities formed in the U.S. or foreign entities registered to do business in the U.S.

Both existing and newly formed entities are required to file their beneficial ownership information. New entities must file within 30 days of formation, while companies formed prior to January 1, 2024 have until January 1, 2025 to submit their information.

Who Is Exempt from Filing?

Not every business needs to file under the CTA. There are several exemptions, primarily for larger companies or entities that already report to other regulatory bodies. Exemptions include:

• Large Operating Companies: Businesses with over 20 full-time employees, a physical office in the U.S., and over $5 million in revenue.

• Banks, Credit Unions, and Insurance Companies: These institutions already report ownership information through other regulatory channels.

• Government Entities: Any state, local, or federal governmental entity is exempt from filing.

While these are the primary exemptions, other specific exemptions exist. If you’re uncertain about whether your business qualifies for an exemption, you should consult a legal or compliance expert.

Who is a "Beneficial Owner"?

A "beneficial owner" is generally someone who owns or controls at least 25% of an entity’s equity or voting rights, or exercises substantial influence over its operations or decisions. This person can be anyone with a substantial interest in or authority over the entity, regardless of whether they are a formal officer or director. The concept of beneficial ownership is essential for identifying the true parties behind a business, helping to enhance transparency and combat illegal activities such as money laundering and tax evasion.

How to File Your Beneficial Ownership Report

Once you’ve determined that your business needs to file, here’s a clear process to follow:

1. Gather Information Needed to Complete Report:

   • For the Reporting Company, you will need:

     • Entity's legal name

     • Complete current street address of the principal place of business

     • Jurisdiction of formation (i.e., the state where your business was formed)

     • The Internal Revenue Service Taxpayer Identification Number

   • For EACH Beneficial Owner, you will need:

     • Full legal name

     • Date of birth

     • Current residential street address

     • A unique identifying number in the issuing jurisdiction from either a non-expired passport or a non-expired identification document issued by a state or local government, or an Indian Tribe or a non-expired driver’s license issued to the individual by a state; and

     • An image of the document from which the unique identifying number was obtained, and the image must include the individual’s photograph.

2. Visit the FinCEN Filing Portal: FinCEN has provided a secure platform where business owners can submit their beneficial ownership information online. Click here to go directly to the FinCEN filing page.

3. Submit Your Information Electronically: Follow the instructions provided on the FinCEN website to submit your beneficial ownership information securely. The system is designed to be user-friendly, but for complex cases, consulting with an expert may be beneficial.

4. Maintain Compliance: After the initial filing, remember that any changes in beneficial ownership must be reported within 30 days. Keeping your records up to date helps avoid potential penalties and maintains your compliance with the CTA.

Consequences of Non-Compliance

Failure to comply with the CTA can result in hefty fines. Business owners who fail to file, file late, or submit false information face penalties of up to $500 per day. These fines can accumulate, reaching up to $10,000, and may even include criminal charges and imprisonment in severe cases. It’s essential to stay proactive and ensure that your business meets the requirements to avoid these repercussions.

Quick Tips for Business Owners

With the CTA deadline approaching, here are some final tips to help you stay compliant:

• Review Your Filing Requirements: Check out the Small Entity Compliance Guide prepared by the Financial Crimes Enforcement Network. If you think your business may be exempt, you should confirm this with a legal or compliance advisor.

• Organize Documentation Early: Gathering the necessary details in advance can make the filing process smooth and stress-free.

• Keep Track of Deadlines: New businesses should file within 30 days of formation, while existing businesses have until January 1, 2025. Mark these deadlines to avoid last-minute filing.

• Consult a Compliance Expert: If you’re unsure about any part of the CTA, professional guidance can save you time and reduce your risk of penalties.

Key Takeaway: Don’t Delay – Act Now to Avoid Penalties

The Corporate Transparency Act is an essential new regulation for business owners, promoting transparency and accountability while protecting against financial crime. Staying compliant can prevent costly fines and protect your business. File your BOIR today!

For more details and to complete your filing, visit FinCEN’s official filing portal.