Small Companies are Required to Report Owner Information to the Federal Government

For the first time in history, there are now federal reporting requirements for small companies.

The Corporate Transparency Act (CTA) requires corporations, Limited Liability Companies (LLCs), or similar entities registered to do business in the United States to meet reporting requirements. The law, which went into effect this year, applies to companies that form a new entity, including mom-and-pop shops, real estate companies, and others.

The CTA provides reporting exemptions for publicly traded corporations and regulated companies that already provide information to a government agency, such as financial institutions, companies that employ more than 20 full-time workers, or businesses that report revenue of more than $5 million a year.

What are companies required to report?

To make it more difficult to operate anonymous shell businesses for tax evasion or criminal purposes, the CTA requires that most companies annually report the name, address, date of birth, and identifying number (non-expired driver’s license number, state ID card, or passport number) for each beneficial owner.

What federal agency is collecting the data?

The Financial Crimes Enforcement Network (FinCEN) will maintain the database, which could be used for law enforcement, national security, or intelligence purposes. Information will not be made available to the public under the Freedom of Information Act or similar laws.

Who is a beneficial owner?

The CTA specifies that companies must provide specific information to FinCEN, but who is a beneficial owner? The CTA defines a beneficial owner as an individual who, directly or indirectly, through contract, arrangement, understanding, relationship, or otherwise exercises substantial control over the entity or owns 25 percent of the ownership interest in the company.

What is the penalty for companies that fail to report?

Business owners who fail to report or those who provide false information could face criminal fines of up to $10,000 and/or imprisonment and civil penalties of up to $500 a day for each day the violation continues.

Help is available

The business attorneys at O’Reilly Rancilio are available to answer your questions regarding the CTA regulations. For more information, please call 586-726-1000 or visit our website.

Categories: Business