What is the Corporate Transparency Act? Here’s What to Know.

The Corporate Transparency Act (CTA) is shaking up how small businesses handle ownership disclosures. Enacted in 2021, this Act went into effect in January of 2024. It’s enforced by the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Department of Treasury.

Similar to the Economic Crime and Corporate Transparency Bill enacted a few years ago in the UK, the goal of CTA is to create a more transparent business environment. One that thwarts financial crimes and fraudulent activities.

What to Know About CTA

CTA requires certain entities to file beneficial ownership reports. It aims to prevent money laundering and boost corporate transparency. It’s a simple premise: If you know what your legal obligations under this statute are, it will help you steer clear of costly penalties.

At its core, the CTA reporting requirement mandates that businesses disclose all beneficial owners—individuals who hold at least 25% of ownership interests or wield substantial control (like appointing or removing senior officers).

Here’s what this means in layman’s terms:

Imagine you start a small business with two friends. You personally own 50% of the business, your first friend owns 30%, and your second friend owns 20%. Under the Corporate Transparency Act, you wouldn’t just say, “This business is owned by three partners.” You’d have to name yourself and each friend, include details like percentages owned, and provide personal information. This way, the government knows exactly who the real people behind the bakery are—not just the name of a company or group.

What Does Reporting for the Corporate Transparency Act Look Like?

Beginning January 1, 2024, newly formed entities must report the above information to FinCEN within 30 days. Existing businesses have until January 1, 2025. Miss these compliance deadlines, and you could face fines of up to $10,000–or even criminal charges.

Critical to know? There are 23 exemptions. Exemptions from being considered a “reporting entity” include:

• banks
• credit unions
• investment companies
• investment advisors
• insurance companies
• accounting firms

Additionally, larger, well-established companies with more than 20 full-time employees in the U.S., a physical office in the country, and at least $5 million in gross receipts from the previous year may not need to file. However, if you suspect you fall under the CTA’s purview, get moving sooner than later.

If you suspect you fall under the CTA’s purview, get moving sooner than later.

Start identifying what to do next. You can, for example, perhaps begin by gathering the required personal information (names, addresses, and identification details) for each beneficial owner and be prepared to submit everything accurately.

Final Thoughts

By staying informed and proactive, your small business can fully comply with the Corporate Transparency Act and focus on what truly matters—growing and thriving in a fairer, more accountable marketplace.

Let’s Start a Conversation 

Schedule a virtual coffee with a team member on how your organization can prepare for the CTA: Click here to demo our GRC solutions.