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On January 1, 2024, a new federal law went into effect. The Corporate Transparency Act (CTA), which was enacted as part of the 2021 National Defense Authorization Act, requires many businesses to disclose detailed information about their ownership and control. While the law was designed to combat money laundering, financial fraud, and terrorist financing, it has significant implications for a broad range of U.S. businesses, including farms and agricultural operations. Here's what you need to know about this new requirement, how it affects your business, and how to comply.
What is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act was created with the goal of increasing transparency in U.S. business operations. Specifically, it seeks to identify individuals behind companies who might be engaged in illicit activities like money laundering, fraud, or financing terrorism. By requiring businesses to submit a report about their beneficial owners—those who own or control the company—the CTA aims to create a national database that law enforcement and financial institutions can access to distinguish legitimate businesses from those operating as “shell” companies.
The Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury, oversees the collection of this data. The information collected will be used to bolster national security, improve economic integrity, and reduce the opportunity for illegal financial activities to occur within the U.S.
Who Needs to Comply with the CTA?
The CTA applies to most U.S. businesses that are registered with a Secretary of State or similar state agency, including corporations, limited liability companies (LLCs), and similar entities. This includes both new businesses and those already in operation. The law also applies to foreign companies doing business in the U.S.
Who is Exempt from Complying with the CTA?
Some business types are exempt, including sole proprietorships, general partnerships, and nonprofits. The CTA exempts many other types of entities from its reporting requirements, including banks, insurance companies, and others believed to already be sufficiently regulated by state or federal government. Large operating companies—entities with more than twenty employees, five million dollars in gross revenue, and a physical office in the United States— are also exempt.
What Information Must be Reported?
Under the CTA, businesses must report specific information about their "beneficial owners." A beneficial owner is defined as someone who directly or indirectly exercises substantial control over the company. They have a major influence on the reporting company’s decisions or operations, own at least 25% of the company's shares, or have a similar level of control over the company's equity. There is no limit to the number of individuals who qualify as “beneficial owners.” For example, a senior officer of a company, including general counsel, and individuals who are important decision makers over business, financial, or governance matters could be considered beneficial owners.
Here’s the information businesses must submit:
1. “Entity Information” - Legal name of the company, trade names (DBAs), business address, and Taxpayer Identification Number (TIN) or Employee Identification Number (EIN).
2. “Beneficial Owner Information” - Full legal name, date of birth, address, and identification number (e.g., driver’s license, passport, or similar). Reporting entities are also required to submit an image of the identifying document.
In addition, for businesses established after January 1, 2024, reports must also include details about the company's founders and applicants, including their names, addresses, dates of birth, and IDs. Applicants are defined as "any individual who files an application to form a corporation, LLC, or other similar entity under the laws of a State or Indian Tribe; or registers [a foreign entity] to do business in the United States." 31 U.S.C. § 5336(a)(2).
Filing Deadlines
The filing deadline for most businesses is January 1, 2025. However, there are exceptions based on when a business was formed.
Businesses formed before January 1, 2024, must file by January 1, 2025.
Businesses formed between January 1, 2024, and January 1, 2025, must file within 90 days of formation.
Businesses formed on or after January 1, 2025, must file within 30 days of formation.
Once a report is filed, businesses are required to update the information whenever there are significant changes, such as changes in ownership, business structure, or if a beneficial owner moves or changes their name. Updates must be submitted to FinCEN within 30 days of the change.
Penalties for Noncompliance
Failure to comply with the CTA can result in severe penalties, including:
Civil penalties of up to $591 per day for continued non-compliance.
Fines of up to $10,000.
Possible two-year imprisonment for willfully failing to report or providing false information.
These penalties underscore the importance of meeting deadlines and ensuring that all information provided is accurate and up-to-date.
Reporting Process: How to Submit Your BOI Report
The process to submit a beneficial ownership information (BOI) report is relatively straightforward. The U.S. Treasury Department’s FinCEN has set up an online portal where businesses can file their reports securely. There are no fees associated with filing, and electronic submissions are the preferred method.
For those who prefer professional assistance, it's wise to consult with an attorney, accountant, or another trusted advisor who is familiar with the requirements of the CTA. This can help ensure your report is filed on time and meets all necessary legal standards. Given that small business owners have many responsibilities, it's easy for this requirement to slip through the cracks, but failing to comply could lead to serious consequences.
For more details on reporting and a complete list of exceptions, see the Small Entity Compliance Guide on the FinCEN’s Beneficial Ownership Information website.
Special Considerations for Agricultural and Farming Businesses
Many small to mid-sized farming and agricultural businesses may be affected by the CTA. These businesses often have family ownership structures, which could mean that a significant portion of the company’s control resides with a small group of individuals. For farms, understanding who qualifies as a beneficial owner is key, as family members who don’t directly own the business but have substantial influence could be required to be reported.
Is the CTA Facing Legal Challenges?
In early 2024, a legal challenge was filed by the National Small Business Association (NSBA) against the U.S. Treasury Department, arguing that the CTA infringes on privacy protections and exceeds Congress' constitutional authority. A federal court in Alabama ruled in March 2024 that the law is unconstitutional, but this ruling only applies to businesses in that specific jurisdiction. The Treasury Department has appealed the decision, and the CTA remains in effect in most parts of the country.
Key Takeaways for Small Business Owners
Check if your business qualifies as a "reporting company." Most LLCs, even single-member LLCs, and corporations will be required to file.
Submit your Beneficial Ownership Information report to FinCEN by the deadline to avoid penalties.
Ensure the information is accurate and update it within 30 days of any changes.
Seek professional advice to ensure you comply with the law, particularly if you have complex ownership structures or need help navigating the filing process.