Does Your Business Have to Report Under the Corporate Transparency Act?
Corporate Transparency Act Compliance for Your BusinessBeginning in 2024, almost every incorporated business in the United States is subject to a new requirement- disclosing the identities of owners and "beneficial owners" to the U.S. Department of Treasury. As business owners struggle to get their heads around this new requirement, a common question is "how do I know if this applies to me?"
Below, we explore the rules about who is required to report beneficial ownership under the CTA. |
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Understanding the Purpose of the CTA
Understanding the reasoning behind the CTA is helpful in deciphering the rules about who does and does not have to disclose ownership information. In short, the purpose of the law is to make it easier for federal law enforcement, specifically agencies investigating things like money laundering and terrorism, to look behind the curtain of registered corporations and discover who the owners and beneficial owners are. Traditionally, registration with the state for an LLC or a corporation does not require disclosure of the owners, only of the members of an LLC and officers and directors of a corporation. The CTA creates a database of the ownership information to be available to federal law enforcement in furtherance of an investigation and state and tribal law enforcement with a court order allowing release.
This is why the definition focuses on entities registered with a state, and provides exemptions to certain kinds of entities that are either already subject to regulatory controls.
This is why the definition focuses on entities registered with a state, and provides exemptions to certain kinds of entities that are either already subject to regulatory controls.
What is a "Reporting Business" Under the CTA?
"Reporting Businesses" are the entities mandated to submit reports. In simple terms. The first step is to see if your business meets the definition. In simple terms, any entity that is registered with the state is a reporting business.
What does that mean? An LLC or a corporation is created by registering it with the Secretary of State in your state or commonwealth. That means it meets the definition of a reporting business. A trust that holds investment property in most cases is a private document that is not registered with the state, which means it is usually not a reporting business under the CTA. If you operate a business as a dba (doing business as) that is not legally incorporated, you have not registered with the state and therefore would not be considered a reporting business.
What does that mean? An LLC or a corporation is created by registering it with the Secretary of State in your state or commonwealth. That means it meets the definition of a reporting business. A trust that holds investment property in most cases is a private document that is not registered with the state, which means it is usually not a reporting business under the CTA. If you operate a business as a dba (doing business as) that is not legally incorporated, you have not registered with the state and therefore would not be considered a reporting business.
Understanding the CTA Exemptions
The CTA includes specific exemptions, totaling 23 types of entities. These exemptions encompass a wide range of businesses, such as publicly traded companies, banks, and tax-exempt entities. Each of these three types of entities are already subject to regulatory and disclosure requirements, and therefore presumably do not implicate the purposes of the CTA.
There is an additional exemption, called the "large operating company" exemption. To qualify for this exemption, a company must meet certain criteria: (i) employ more than 20 full-time, U.S.-based workers; (ii) maintain a physical U.S. office or presence; and (iii) report over $5 million in gross revenues on the prior year's tax return. It is unclear why these entities are exempted, other than the fact that the combination of a sizeable workforce, identifiable U.S. based physical presence, and substantial tax reporting may already make it easier for law enforcement to gather information about those companies.
If you are a small business owner considering the large operating company exemption, remember that the way the rule is written you must meet all three factors. For example, if you have 20 employees and less than $5 million in gross revenue in any particular year, you are not exempt and will have to report. With 89% of U.S. small businesses employing fewer than 20 employees, most won't qualify for this exemption and must comply with the CTA's reporting requirements.
There is an additional exemption, called the "large operating company" exemption. To qualify for this exemption, a company must meet certain criteria: (i) employ more than 20 full-time, U.S.-based workers; (ii) maintain a physical U.S. office or presence; and (iii) report over $5 million in gross revenues on the prior year's tax return. It is unclear why these entities are exempted, other than the fact that the combination of a sizeable workforce, identifiable U.S. based physical presence, and substantial tax reporting may already make it easier for law enforcement to gather information about those companies.
If you are a small business owner considering the large operating company exemption, remember that the way the rule is written you must meet all three factors. For example, if you have 20 employees and less than $5 million in gross revenue in any particular year, you are not exempt and will have to report. With 89% of U.S. small businesses employing fewer than 20 employees, most won't qualify for this exemption and must comply with the CTA's reporting requirements.
What Should You Do If You Are a Non Exempt Reporting Business?
The bad news is that there are potentially significant penalties for failing to comply if you are a non-exempt reporting business. The good news is that the reporting itself does not have to be difficult.
The first thing you should do is contact an attorney who is familiar with the CTA to confirm that you need to report, and identify who needs to be disclosed as a beneficial owner. Once you have confirmed this information, you can either have the attorney take care of the filing for you, or it is possible to do it yourself.
You should also make sure to discuss with your attorney what triggers an obligation to update the filing if there are changes in beneficial ownership, as defined under the CTA.
The first thing you should do is contact an attorney who is familiar with the CTA to confirm that you need to report, and identify who needs to be disclosed as a beneficial owner. Once you have confirmed this information, you can either have the attorney take care of the filing for you, or it is possible to do it yourself.
You should also make sure to discuss with your attorney what triggers an obligation to update the filing if there are changes in beneficial ownership, as defined under the CTA.
How We Can Help
At slnlaw, we understand the intricacies of the CTA and can help ensure your business avoids costly penalties. Whether you’re a newly formed corporation or have been in business for years, our team provides the expertise and support you need to navigate these new requirements confidently. Reach out to us today to ensure your business is fully compliant with the Corporate Transparency Act and avoid potential penalties. You can use the button below to schedule a free information call, or give us a call at (781) 784-2322.
Meet Our Business Attorneys
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years with a focus on business litigation. In 2009, she started the firm that since became slnlaw, and has grown it from a solo practice to a five-attorney firm with multiple practice areas. She has been recognized as Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year. She has written a book on employment law: Rules of the Road, What You Need to Know About Employment Laws in Massachusetts, and helped hundreds of small business owners with contracts, business transactions, employment law advice, business incorporation, and risk management. She has also litigated business disputes in state and federal courts.
Rebecca Rogers: Rebecca is a 2006 graduate of Boston College Law School, and has worked with slnlaw since 2013. She previously worked as an intellectual property litigation attorney for Fish & Richardson in Boston, Massachusetts, and clerked for the Massachusetts Supreme Judicial Court. Rebecca has helped clients with business contracts, employment contracts, and employment law advice.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna has helped many small business owners with simple and complex business incorporation, contract review, advice and analysis regarding business disputes, employment law advice, and advice about business succession considerations as part of estate planning.
Elijah Bresley: Eli is a 2014 graduate of Seton Hall Law school, and has worked with slnlaw since 2020. He previously worked for a boutique employment law firm outside of Boston, and then for the Labor and Employment department of a large Boston firm. He also spent a year clerking for the judges of the Superior Court in Hartford, Connecticut. Eli has helped our small business clients with employment law advice and defense of employment-related lawsuits in MCAD and state and federal courts.
Sharleen Tinnin: Sharleen is a 2010 graduate of Northeastern University School of Law, and has been with slnlaw since 2023. Prior to joining slnlaw, she worked with King, Tilden, McEttrick & Brink, P.C. on complex civil litigation matters. She previously worked for the United States Department of Justice, and received an "Excellence in Justice" award in 2017. Sharleen has helped clients litigate business disputes in state and federal courts, and advised business owners about succession considerations as part of their estate planning.
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