Embarking on business ownership is a gratifying venture, albeit one accompanied by regulatory obligations and reporting responsibilities that may pose challenges to manage. Small business proprietors and those with business interests held in trusts are mandated to adhere to the Corporate Transparency Act (CTA) starting January.
Commencing January 1, 2024, the CTA necessitates that small enterprises divulge the identities of owners holding a 25% or greater ownership stake, alongside individuals exercising substantial control over the company’s operations. This regulation extends to trusts with ownership or control of a business.
If you are a business owner or have a trust linked to a business, compliance with CTA reporting is obligatory. Furthermore, for those contemplating the establishment of a new company in the coming year, the reporting deadline may be within 30 days of its inception.
Acting before year-end offers an opportunity to secure an extension for filing the required report. This blog outlines a method to obtain a year-long reporting extension, granting additional time to compile the necessary information for CTA reporting. Before delving into the extension process, understanding the implications of CTA on your business is crucial.
What The Corporate Transparency Act Means For Your Business
The Corporate Transparency Act (CTA), enacted in 2020, aims to bolster corporate transparency and curb financial crimes such as money laundering and terrorist financing. The Act mandates certain businesses, including select corporations and LLCs, to disclose information about their owners and controllers. This requirement is designed to facilitate the identification of “shell” corporations—entities lacking active business engagement and often exploited for illicit money movements.
Businesses subject to the Act must report details about individuals owning 25% or more of the company and those with “substantial control” over its activities to the Financial Crimes Enforcement Network (FinCEN). This reporting obligation extends to individuals exercising control through trusts.
To ensure compliance, affected businesses must submit an annual report containing information on each owner or controller, including:
- Business name and 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
If a company doesn’t file an annual report, it may be penalized with a $500 fine for every day the report is late and its owners could even face imprisonment for up to two years.
What Businesses Need to Report Under The CTA?
The new rule under the Corporate Transparency Act (CTA) is applicable to any company established by submitting a formation document to the Secretary of State or a similar office, encompassing corporations and limited liability companies (LLCs).
The Act primarily targets the gathering of information on small businesses, as money laundering and terrorist financing often occur through such entities. Consequently, entrepreneurs and small business owners should be particularly vigilant in meeting the filing requirements.
It’s important to note that publicly traded companies, non-profits, and regulated entities like financial firms, accounting agencies, and banks 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. Additionally, an LLC or corporation not actively engaged in business or service is exempt due to its inactive status.
When Do Businesses Need to File Their Report and How Can You Extend Your Deadline?
When it comes to filing your annual report for the Corporate Transparency Act, the timeline is crucial. If your company was established after January 1, 2024, you must file the report within 30 days of its creation. However, if your company was formed on or before December 31, 2023, you have until January 1, 2025, to submit the CTA report.
For existing business entities, the deadline for submitting the report is January 1, 2025. This means that if you’re considering creating a new company or altering the structure of an existing one, doing so before January 1, 2024, provides a year-long grace period to file the report. Missing this deadline after January 1 means losing the opportunity to benefit from this extension.
Why does this extension matter?
The extension offers a valuable opportunity for business owners to comprehensively grasp reporting requirements, collect essential information, and collaborate with legal professionals to ensure compliance with the Act, all without the urgency of a 30-day deadline.
While the reporting rules of the Act may seem straightforward, the consequences for non-compliance can be significant. Establishing your new business entity by the end of the year acts as a safeguard against potential penalties and risks arising from overlooking or misunderstanding reporting requirements. It’s a proactive measure that provides your business with the advantage of time.
Helping You Make Strategic Moves for The Wellbeing of Your Family
If you own a family business or are considering establishing a new business entity, I strongly recommend taking action before the year’s end to benefit from the extended timeframe for filing your Corporate Transparency Act report for existing businesses.
Avoid waiting until the last days of December, as we anticipate a surge in new business filings during that period. Business owners and professionals tend to rush to submit creation documents before the new year begins. If you require assistance with filing your report or are unsure about the applicability of the CTA rule to your company, we are here to assist you.
As your attorney, my commitment is to guide your family through every life stage and legal change. Our relationship with you is ongoing, extending beyond the filing of paperwork. We stay in touch, keeping you informed of any legal changes, ensuring your peace of mind by ensuring that your family and assets are well taken care of now and in the future.
At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, starting with a valuable and educational Life & Legacy Planning Session. This will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan.
To learn more about our one-of-a-kind systems and services, contact us or schedule a no-obligation 15-minute introductory phone call today.