Corporate Transparency Act deadline looms: It's OK for small businesses to ask for help

More than 32 million businesses in the United States are small—playing an important role in the economy by creating nearly 65% of net new jobs over the past 20 years and making up almost 99% of all businesses in the country. Yet, starting a small business, running it, and staying compliant with ever-changing laws and regulations is challenging. LegalZoom shares what to know to maintain a successful and compliant small business.

What is the Corporate Transparency Act?

One of those laws that small businesses must pay close attention to is the Corporate Transparency Act, designed to curb financial crimes and fraud. This Federal act now requires companies to submit a Beneficial Ownership Information Report to the Financial Crimes Enforcement Network, disclosing the identities of the people who own or control the business to make it more difficult for individuals to use corporate entities for illicit purposes.

What Are the Penalties for Failing to File a BOIR?

Failure to file under this law, or filing with inaccurate information, can lead to criminal penalties of imprisonment for up to two years, a fine of up to $10,000, and a civil penalty of $591 per day of noncompliance. Newly formed companies launched in 2024 have 90 calendar days from the date of formation to file. Businesses that existed before Jan. 1, 2024, have until Jan. 1, 2025, to file, but are advised to file as soon as possible to ensure compliance. Starting in 2025, the window to file is shortened to 30 days after business formation. 

Clearly, compliance with this law can feel overwhelming and complex for a small business owner whose main focus is running the day-to-day operations of their business. When LegalZoom surveyed more than 200 small business owners across the country on why they hadn't filed yet, many said it was because they were unsure of how best to proceed, and when. This research found that business owners often don't have the bandwidth to take on navigating compliance requirements or have the interest to do so when considering other facets of their business. Those who had already filed cited that they wanted the ability to talk to someone for help, were afraid of making mistakes, or didn't have the time to conduct the research needed to accurately file this report. 

Tips for Filing Your BOIR

To help encourage small businesses to start the BOIR filing process, here are some tips. First, determine if your business qualifies as a reporting company under the CTA. Typically, this includes corporations, limited liability companies, and similar entities established through filings with state or tribal authorities. Once you have confirmed your obligation to file, provide detailed information about your beneficial owners, the individuals who have significant control over the company or own 25% or more of its interests. This critical information must be reported to FinCEN. 

For many small business owners—many of whom have other jobs in addition to running their own business, seeking guidance from third-party companies specializing in regulatory compliance can be highly beneficial. In fact, LegalZoom's research has found that most business owners actually prefer hands-on guidance to ensure they submit the most accurate reports to avoid non-compliance. Additionally, specialists offer invaluable guidance to ensure all required information is submitted on time, thereby minimizing the risk of errors or potential penalties. 

Owning and operating a small business presents its challenges, particularly in navigating an ever-evolving compliance landscape. Amidst the pressures of keeping the doors open and generating sales, ensuring compliance with the CTA goes beyond meeting legal obligations—it's crucial for maintaining transparency and protecting the integrity of our financial system. 

Compliance is not just a legal necessity; it's a commitment to transparency and trust in our economic system. It's okay to ask for help.

Frequently Asked Questions About the Corporate Transparency Act

What is the purpose of the Corporate Transparency Act?

The Corporate Transparency Act is a new U.S. law intended to help identify and prevent money laundering and other illicit activities within the country by enforcing transparency standards for U.S. businesses.

Do all businesses need to file a BOIR?

Most businesses registered within the U.S., including corporations and LLCs, are required to file a BOIR before the deadline. Certain businesses, such as large, publicly traded companies, government entities, and specific industries, may be exempt from these requirements.

Who is considered a beneficial owner?

A beneficial owner is anyone who has significant control over a reporting company or who owns at least one-quarter of the company's ownership interests.

How often do you need to update beneficial ownership information?

Reporting companies need to update their beneficial ownership information within 30 days of certain changes, such as any change in the company's ownership.