The Corporate Transparency Act (CTA) is a critical piece of legislation enacted in 2021 that could significantly impact your small to mid-sized business operations. This law aims to curb illicit activities like money laundering and tax fraud by enhancing transparency around business ownership.
Paul Skeith, one of the founding partners of Richards Rodriguez & Skeith, breaks down this crucial new legislation for Austin business owners.
Key Deadlines and Who It Affects
For businesses formed before January 1, 2024, there is a crucial compliance deadline approaching on January 1, 2025. It’s essential for these businesses to understand their obligations under the CTA to avoid hefty penalties.
Exemptions from the CTA
The CTA primarily targets smaller businesses, and excludes public companies and private companies with 20 or more employees and annual revenues exceeding $5 million. These larger entities are generally exempt from the CTA’s requirements.
Reporting Requirements
Under the CTA, both domestic and foreign entities are required to report beneficial ownership information. This includes:
- Domestic Reporting Companies: Corporations, LLCs, and any entities formed by filing documents with a state’s Secretary of State or equivalent.
- Foreign Reporting Companies: Non-U.S. entities registered to do business in any U.S. state.
Who are Beneficial Owners?
A beneficial owner under the CTA includes any individual who, directly or indirectly, exercises substantial control over a company or owns or controls at least 25% of the company’s ownership interests.
This means it’s insufficient to review a company’s capitalization table; it’s necessary to evaluate who exercises control over the company on a case-by-case basis.
Consequences of Non-Compliance
Non-compliance with the CTA can lead to severe consequences. Businesses that willfully fail to report accurate beneficial ownership information face daily fines of $500, culminating in a maximum of $10,000, along with the possibility of up to two years in prison.
Legal Challenges
It’s worth noting that on March 1, 2024, a U.S. district court judge in Alabama declared the CTA unconstitutional, although this ruling currently applies only to the plaintiffs in that specific case. Therefore, all other businesses must continue to prepare for compliance with the CTA.
The Corporate Transparency Act presents complex challenges and potential compliance costs for small businesses. It’s more crucial than ever to stay informed and consult with a knowledgeable attorney to understand how these changes might affect your business and to ensure that you meet all legal obligations of the Act.
Navigating the intricacies of such a transformative law can be daunting, but with the right guidance from an Austin business law firm like Richards Rodriguez & Skeith, you can position your business for success and compliance in the ever-evolving regulatory landscape.
