If you own a business, you need to know about the Corporate Transparency Act

There was a time when you could set up a company in the United States without specifying who owns it — and that time ended very recently, on Dec. 31, 2023.

The federal Corporate Transparency Act (CTA) became finalized as law in 2022, after years of attempts to crack down on anonymous shell companies, or companies that don’t conduct business activity. Shell companies have been used for money laundering, hiding money that was obtained illegally through political or corporate corruption, fraud, drug trafficking and even terrorism. We saw examples of widespread international money-hiding in data leaked during the 2016 Panama Papers scandal.

As of Jan. 1, certain companies, including most small businesses, must report their beneficial ownership information (BOI), specifying their owners and operators.

Should you be concerned about the CTA as a small business owner?

On the one hand, no. If you run an honest company, you’re not the target of federal money laundering investigations. You just have to report who owns and operates your company.

On the other hand … yes. You need to be aware that if you don’t report your company’s ownership information (or report it incorrectly), you could find yourself in hot water, even if you’re not committing money laundering crimes.

“The devil’s in the details, and any small mistake can be considered non-compliance, which can trigger penalties — even a criminal penalty, which is two years in jail,” said John Williams, CEO of the Delaware incorporation company IncNow.

Companies are required to report the owner(s) and anyone who makes decisions for the enterprise. So, for example, if a company is owned by one person and hired a CEO to run operations, both people need to be reported. And they need to be reported meticulously: If an owner is listed as “Jane A. Jones” on business paperwork and reports herself as “Jane Jones,” that would be a technical violation. It wouldn’t likely mean jail time, but the fines are no joke.

“The way the law was written, it has these extreme penalties of $591 a day,” Williams said.

Some entities are not required to report, such as publicly traded companies, most nonprofits and companies in regulated industries — for instance, finance companies governed by the Securities and Exchange Commission. Most incorporated companies, LLCs and partnerships in the US are classified as domestic reporting companies, while companies based abroad that are registered to do business here are foreign reporting companies.

Because it’s easy — and potentially consequential — to make a small mistake, the US Chamber of Commerce recommends that reporting companies have their lawyer assist with filing.

A platform to simplify the process

IncNow, an affiliate of The Williams Law Firm in Wilmington (and still the only incorporation company to be a Certified B Corp), has an online Delaware incorporation platform designed to simplify the process for companies from anywhere. About eight months ago, Williams decided that the team would build a platform for IncNow’s clients to simplify the CTA reporting process. He wound up starting a whole new LLC called CTAboi that will be accessible to companies beyond IncNow’s client base, including companies that are not incorporated in Delaware.

CTAboi is not just a side project — with only 450,000 out of 35 million reporting companies having reported so far, there’s a long way to go. CTAboi has an office one floor down from IncNow’s office in downtown Wilmington, and Williams said a whole team will eventually fill it. The platform should launch sometime in March.

Without that platform live yet, though, new companies will have 90 days to report; if your company was founded before 2024, you have until Jan. 1, 2025.