Major Law Development for Small Businesses
First Citizens Wealth INTEL: Insights and News—Taxation, Election & Legislation
Each month, we'll cover time-sensitive updates on tax, election and legislation developments that could affect you.
Enacted in 2021, the Corporate Transparency Act, or CTA, is part of a government crackdown on anonymous shell companies. The CTA became effective January 1, 2024.
Who is impacted
The companies impacted by the CTA are mainly the millions of US-based small businesses with 20 or fewer employees and less than $5 million in revenue. These are defined as reporting companies—usually a corporation, limited liability company or other similar entity formed by filing a document in the US.
The people impacted are the beneficial owners of those reporting companies. A beneficial owner is someone who has a significant ownership stake in a company—either directly or indirectly. They can have a major influence on the reporting company's decisions or operations or own at least 25% of the company's shares or equity.
There are exceptions. For example, 23 categories of business entities are listed outside the definition of reporting company. And there are five profiles not defined as beneficial owners, including most employees and minors if their parent or guardian details are recorded. It's important to check your company and ownership status with your FCA, lawyer or advisor.
What action is required—and when
The CTA requires every reporting company to file a Beneficial Ownership Information Report, or BOIR, with the Financial Crimes Enforcement Network of the US Department of Treasury. The BOIR must provide accurate information on both the company and all its beneficial owners. Company information must include the company's legal name and address of the main business site. Beneficial owners' personal information includes full legal name, date of birth and residential address.
If your company existed before January 1, 2024, the BOIR filing deadline is January 1, 2025. If the company was formed in 2024, you have 90 days from the notice of formation or public announcement—whichever comes first—to file. If you intend to form a company after January 1, 2025, you have 30 days from notice or public announcement to file.
Filing is mandatory, and failure to do so could result in penalties of $500 per day, a $10,000 fine and up to 2 years in prison. Knowingly failing to comply could result in even more severe fines of $250,000 and a 5-year prison sentence.
Who you should talk to now
Check with your CPA, lawyer or other professional advisor on the status of any reporting businesses in which you believe you have beneficial ownership. Make a note of the filing deadlines for any BOIR you may be required to submit. In addition, be sure to check the date you dissolved any company you've recently been involved with. And reach out to your First Citizens Wealth relationship manager. They'll be able to provide more detailed information. But don't delay. The deadline is fast approaching.
