If you're a small business owner, you've probably been enjoying the privacy and simplicity that owning a small company affords you. (I mean, who will really notice if you take a half-day on Friday or forget to have an annual shareholders' meeting?)
Aside from the flexible vacation you get as the owner, holding your business privately means that you can keep a level of anonymity in your business dealings, such as holding real estate or other investments in the name of your business, and keeping your personal assets separate from your business in the event either you or the business are sued.
But in 2024, small businesses will lose some of that privacy. Beginning January 1, 2024, the Corporate Transparency Act will require small businesses to file an annual report on the majority owners of the business, and failing to file the report comes with real consequences.
So what exactly does this mean for you and your business? Keep reading to learn more.
What Is the Purpose of the Corporate Transparency Act and What Does It Require?
The Corporate Transparency Act was enacted in 2020 and officially goes into effect on January 1, 2024. The Act was created to help the federal government root out money laundering schemes and terrorism financing efforts through “shell” corporations -companies that don't actually perform an active business or trade.
Under the Corporate Transparency Act, small companies will now be required to disclose the names of any owners who own 25% or more of the company and any members of the company who have “substantial control” over the company's activities.
By documenting the owners of small companies, the government hopes to better identify shell corporations involved in money laundering, as most money laundering happens through small companies, rather than large corporations.
In order to comply, a business must file an annual report with the following information on each owner or controller of the business to the Financial Crimes Enforcement Network (FinCEN):
- Business name
- Current business address
- State in which the business was formed and its Entity Identification Number (EIN)
- Owner/controller's name, birth date, and address
- Photocopy of a government-issued photo ID (such as a driver's license or passport) of every direct or indirect owner or controller of the company
Failing to file an annual report could result in serious repercussions, from paying a fine of $500 for every day the report is late up to imprisonment for two years.
Do All Businesses Need To Comply?
The Corporate Transparency Act is broadly written, so almost every small business will be required to comply with the new reporting rules - but not all.
Let's break it down…
The new rule applies to any company that is created by filing a formation document with the Secretary of State or a similar office, such as corporations and limited liability companies (LLCs).
Non-profits, publicly traded companies, and regulated companies like banks and investment advisors are exempt from the rule. Large companies are also exempt if they have 20 or more full-time employees in the US and generate $5 million in sales.
And if you have an LLC or corporation you created but aren't actively using to run a business, that company is also exempt due to its inactivity.
Your Partner for Staying in the Loop
Being a small business owner is incredibly rewarding, but it can also be difficult to stay on top of reporting requirements and other changes in the law because you don't have the manpower or the time to keep track of everything.
That's where I come in. As your Personal Family Lawyer®, I help businesses stay up-to-date on their requirements, and make sure your company has everything it needs for real success, from a strong foundation to a plan for sustainable growth, no matter what stage your business is in.
If you aren't sure if your company is required by the Corporate Transparency Act to file an annual report, give me a call. I'd be happy to review your situation and learn more about your vision for your business.
And if you want to make sure your business is set up for long-term success, ask me about my LIFT™ Business Breakthrough Session where I make sure your Legal, Insurance, Financial, and Tax systems.
Schedule a free call today to get started.
This article is a service of a Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices with your business throughout life and in the event of your death. We also offer a LIFT Business Breakthrough Session™, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.