The United States Senate recently passed Corporate Transparency Act of 2020 (CTA), which requires the reporting of beneficial ownership information for businesses that meet the definition of a “reporting company” to the Department of the Treasury. The CTA is intended to prevent persons performing illegal activaties from concealing the ownership of a business. The provisions of the Act, however, are so overreaching that it will touch on almost every small to medium size business. The CTA is slated to become effective on January 1, 2022 after final regulations are passed.
Under the CTA, a reporting company is created by filing a document with the secretary of state or a similar office under the laws of a state. This requirement will rope in nearly every business in the United States. There are a number of exemptions from the definition, including banks, credit unions, insurance companies and publicly traded companies.
Businesses that fail to report the required information or provide false or fraudulent information will be subject to a civil penalty of $500 per day during the period of noncompliance. In addition, there are criminal fines of up to $10,000 and the possibility of imprisonment of up to two years.
The reporting obligations and risk of fines, penalties, and imprisonment imposed by the CTA will largely impact small businesses, as many larger entities are excluded from the definition of a reporting company.