Business laws at the state and federal levels are constantly evolving. As new ways of doing business emerge, new regulations become necessary. For example, a few years ago, federal lawmakers passed the Corporate Transparency Act (CTA).
The Act received bipartisan support in 2021 and officially went into effect as of January 1st, 2024. Those who operate certain types of businesses may need to file paperwork with federal authorities to remain compliant with the CTA accordingly.
What businesses fall under the scope of the CTA?
To determine if a business is compliant with the CTA, an owner or executive must first establish whether the law applies to their business. The type of organization is essentially what determines if the CTA applies to the business. The goal is to create clear federal records of ownership for businesses not directly associated with an individual.
Therefore, those operating sole proprietorships typically do not need to worry about the CTA. However, someone who operates or invested in a corporation may need to worry about CTA compliance. The law also applies to limited liability companies (LLCs), limited partnerships, and similar businesses. Any organization that has an opaque ownership structure where the public cannot readily identify those with an interest in the organization likely needs to file a report.
What are the report requirements?
The CTA requires a report submitted to the Financial Crimes Enforcement Network (FinCEN). The report should provide the personal identifying details of anyone who has a beneficial ownership interest in the company.
Under the law, a 25% or greater stake in the country requires disclosure. The business also has to identify the individual who filed paperwork to create the company even if they do not hold an ownership interest in the business. Companies already operating when the law took effect have until January 1st, 2025 to submit the necessary report. Companies forming after January 1st, 2024 must submit their BOI reports as part of the startup process.
Non-compliance could lead to fines against a company. This is just one example of how ensuring compliance with ever-changing federal business regulations is important for anyone who owns or helps operate a successful company.