On Jan. 1, a new federal law took effect that more likely than not affects your business. This new law is called the Corporate Transparency Act. The CTA affects every nearly every small business in the United States that employs less than 20 employees.

The CTA requires that entities formed by the filing of a document through a respective state’s secretary of state website (e.g., limited liability companies, limited liability partnerships, corporations, etc.) report certain information to the Financial Crimes Enforcement Network (FINCEN) concerning the entity’s owners, ownership interests and/or persons behind the entity’s veil that run, manage or make decisions concerning the entity’s day-to-day activities.

These companies are known as reporting companies, and the reports are called beneficial ownership reports. Failing to file beneficial ownership reports in a timely manner subjects a reporting company and beneficial owner to civil and criminal penalties (e.g. $500 per day, up to $10,000 and two years of federal imprisonment).

The people who retain ownership, or some other form of controlling interest over the reporting company are called beneficial owners, which is a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, either exercises substantial control over a company or owns or controls at least 25% of the company’s ownership interests.

The person filing the beneficial ownership report on behalf of the reporting company is called the company applicant.

How to report

Both beneficial owners and company applicants need to create an online portal through the Beneficial Ownership Secure System (BOSS). This is a secured, non-public federal registry that will store your information. Today, privacy is a concern for almost everyone. However, BOSS is a secured system that is only accessible by state and federal law enforcement entities or financial institutions in connection with know-your-customer (KYT) requirements. It is not public, nor can it be accessed by public record requests.

What to report

Beneficial owners and company applicants need to report their legal name, date of birth, current residential or business street address, and unique identifying number from an acceptable identification document (e.g. driver’s license, passport, social security number, etc.). If you are a beneficial owner but are concerned about providing your company with this information, you may request a FINCEN identifier number through the BOSS system and simply provide your company applicant with the FINCEN Identifier.

Reporting companies need to report the company name (including any alternative trade or assumed business names) the company street address, the jurisdiction of formation and a unique identification number such as the company’s TIN, EIN, LEI, etc. numbers.

Compliance guidelines

It is up to the small business and its members, officers or owners, etc., to comply with the CTA. Accountants may generally not determine who is a beneficial owner of a reporting company because such a determination is a question of law. Answering a question of law is considered legal advice, which cannot legally be provided by someone without a license to practice law.

Entities formed before Jan. 1, 2024, have until Jan. 1, 2025, to comply with the CTA’s reporting requirements. Entities formed after Jan. 1, 2024, have 30 days to comply with the CTA. Extensions may be granted up to 90 days. Compliance is a one-time action, subject to company ownership changes that require amendment. Again, failing to comply in time with these deadlines carries severe consequences for the reporting company and beneficial owners.

Taylor R. Brooks is an Associate at the law firm of McConnell Wagner Sykes & Stacey. His practice focuses extensively on corporate risk management.