What the business transparency law could mean for your business

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What the business transparency law could mean for your business

In January 2021, Congress passed the Corporate Transparency Act (CTA) which requires companies to identify any shareholder with 25% or more of a company’s stake. This law aims to prevent money laundering, the financing of terrorism or foreign corruption, human and drug trafficking, and several types of fraud.

“To make sure our businesses act ethically, we need to follow the money,” says attorney Jonathan Sparks of Sparks Law. “CTA will hold shareholders accountable for their influence in the market. “

Every noble cause has a price: in this case, its bureaucracy. Companies will now be responsible for filing a new type of document with the government, and doing so incorrectly can result in heavy penalties. Here’s a simplified version of what the CTA says and what it forces you to do.

What the CTA says

CTA requires that each shareholder who owns a substantial percentage of a company be identified. Each business must declare the person’s full legal name, mailing address, date of birth, and number appearing on any passport, driver’s license, or other government-issued identification.

Some may be concerned about confidentiality, especially since this is very sensitive information. Fortunately, no one outside of the Treasury Department has access to these documents. For those who are concerned about cyber attacks or the leaking of this information, the individual can request an identification number from the Treasury Department to use instead.

Interestingly, CTA requires more than those who have a direct stake in the business to be listed. Companies should also identify possible indirect beneficiaries of their market share. Simply put, let’s say that company A owns at least 25% of the stake in company B. If company B owns at least 25% of the shares of company C, then A must also be on the list of beneficiaries of C.

As with all added rules and regulations, the government reserves the right to penalize anyone who does not comply. This may be due to failure to report or reporting false information. Failure to report must be “voluntary”, but it is not clear what is required for something to be considered voluntary or not.

With this understanding of the CTA, anyone considering starting a business or currently owning a business will want to understand how to properly comply and avoid any fines or jail time that may accompany any violation of the law.

What do you need to do

The CTA applies to a particular type of business. You must have an office in the United States, over $ 5 million in annual revenue, and at least 20 full-time employees. If your business doesn’t tick these three boxes, then congratulations! The CTA does not apply to you and is not mandatory.

There are other exceptions to those who are required to follow the CTA. Some tax exempt entities, partnerships and dormant entities are not required to complete CTA documents. To see if this applies to you, consider speaking with a lawyer or accountant about your next steps.

If this applies to you, then things get a little more complicated. For those who own existing businesses, the documents must be properly filed within two years of the LTC officially coming into force. If you are setting up a business after the CTA takes effect and tick the boxes above, you must complete the CTA documents when setting up your entity.

Hopefully, this simplification of the Business Transparency Law helps you grow your business and gain a better understanding of the changing landscape of the business world.

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