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Corporate Transparency Act

Corporate Transparency Act: What It Means for Your Small Business

As we enter the new year, a significant change awaits millions of U.S. businesses with the enforcement of the bipartisan Corporate Transparency Act (CTA) starting January 1. This federal mandate is designed to combat illegal money-laundering activities carried out through anonymous shell companies, a move that could have substantial implications for small businesses.

Key Provisions of the Corporate Transparency Act:

The CTA, embedded in this year's National Defense Authorization Act (NDAA), requires corporations and limited liability companies formed after January 2021 to submit a disclosure report to the Financial Crime Enforcement Network (FinCEN) upon their formation or registration. The report must include details about their "beneficial ownership" and other requisite information.
The Act defines a "beneficial owner" as an individual with either "substantial control" over the entity or ownership or control of at least 25 percent of the entity's ownership interests. Businesses formed after the bill's passage have a two-year grace period to comply. After this, they must update their reports with FinCEN within a year of any changes in beneficial ownership.

Exemptions and Exceptions:

While the CTA includes exemptions, they primarily apply to larger entities such as banks, credit unions, and public accounting firms. Small businesses, typically employing fewer than 20 people, are not exempted from the reporting requirements. Exemptions also extend to entities meeting specific criteria related to income, active business engagement, and physical presence within the United States.

Impact on Small Businesses:

The absence of specific exemptions for small or family-owned businesses implies an added administrative burden, particularly for businesses with fewer than 20 employees. This contrasts with larger firms, including banks and accounting firms, which benefit from exemptions.
The rationale behind exempting businesses with more than 20 employees is likely rooted in targeting individuals who establish LLCs and corporations for illicit transactions, dissolving them shortly afterward. Larger companies are presumed less likely to engage in such activities.

How much will it cost if I decide not to file my business under the Corporate Transparency Act?

Willful reporting violations carry a $500 per day civil penalty; criminal violations are up to $10,000, or two years in prison. Unauthorized disclosure or use carries civil fines of $500 per day and criminal penalties of up to $250,000 or five years in prison or both. The fines start at $500 a day, up to $250,000 per day if the government finds you are trying to perpetrate a fraud.

Addressing the Act's Concerns:

The CTA seeks to address concerns related to individuals using anonymous business structures for various illegal activities, including money laundering, terrorism financing, tax fraud, human trafficking, and more. Small businesses, including those using single-member LLCs for real estate investments, may experience heightened regulatory scrutiny.

What if I am unclear on what I or my company should do now?

Please ask your business attorney for counsel. If you are unrepresented, we are accepting new clients and are assisting businesses with the issues surrounding filing for compliance with the Corporate Transparency Act.

Consult with EVN LAW LLC:

To navigate the implications of the Corporate Transparency Act on your business, consider reaching out to EVN LAW LLC. Our team can provide insights and assistance in ensuring your company complies with the new regulations. Contact us today at (801) 852-2333 to discuss our no- risk Business Checkup package, which includes a review of your company's setup, operations, and financial health. We are here to help you avoid potential costly penalties!

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