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In the coming year, many Ohio small businesses will need to add another task to their compliance checklist as the Corporate Transparency Act (CTA) comes into force.

Part of the Anti-Money Laundering Act (AMLA), the CTA imposes fresh reporting obligations on corporations, LLC, and other business entities with the aim of identifying shell companies that may be utilized for money laundering or concealing illegal funds. The law will impact approximately 30 million small businesses, establishing a federal repository of data provided by designated “reporting companies” that is accessible to relevant authorities.

Violations of the CTA carry civil and criminal penalties. Ohio businesses that are unsure of their reporting obligations should contact the small business attorneys at Graham Law for guidance.

Purpose of the CTA

Embedded within the AMLA of 2020, the CTA, part of the National Defense Authorization Act for Fiscal Year 2021, directs the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department to compile information from private enterprises concerning their principal owners and controlling persons.

The CTA creates a national database of businesses formed under state laws. Certain authorities, including federal and state law enforcement, financial institutions, and government regulators, will have access to the database.

According to FinCEN, the new reporting rule is intended to increase transparency and combat corruption related to the use of anonymous shell corporations and front companies for illicit activities such as money laundering, corruption, drug and arms trafficking, and terrorist financing.

UPDATE: On March 1, 2024 a federal judge declared the CTA unconstitutional. The ruling resulted from a lawsuit filed by the National Small Business Association (NSBA) arguing that the CTA unfairly burdens small businesses. However, it only prohibits CTA enforcement against the NSBA and its members. About 0.1%-0.2% of small business owners subject to the CTA’s filing requirement (about 40,000 businesses total) are impacted by the ruling, according to Wolters Kluwer. Given this narrow scope, unless your business is an NSBA member to which the decision applies, filing a CTA BOI report remains the prudent course of action. The Treasury Department is expected to appeal the decision.

Corporate Transparency Act Reporting Requirements and Exemptions

Effective January 1, 2024, the CTA requires covered business entities, known as “reporting companies,” to disclose to FinCEN information about who owns and controls them. Both existing and newly formed businesses must comply.

Although some companies are exempt from the reporting requirements, Ohio domestic companies with 20 or fewer employees formed by filing paperwork with the Secretary of State, including corporations and LLCs, should be prepared to file what FinCEN calls a Beneficial Ownership Information (BOI) report. A BOI report contains information related to:

  • The name and DBA name of the reporting company, its principal address, state of formation, and taxpayer ID number or FinCEN identifier.
  • The full legal name, DOB, address, and state-issued ID of each beneficial owner (defined as anyone who has “substantial control” over a reporting company or who owns or controls 25% or more of its ownership interests). A company’s senior officers and directors are likely to meet this definition.
  • The same information required of a beneficial owner is also required of a company applicant (the individual who files paperwork with the Secretary of State to create the company).

Ohio businesses registered before January 1, 2024 have until January 1, 2025 to submit an initial report. Businesses created or registered after January 1, 2024 must file a report within 30 days of registration. Any changes to a company’s beneficial ownership structure also require submitting updated information to FinCEN no later than 30 days after the changes occur.

In addition to corporations and LLCs, the CTA may apply to limited partnerships, professional associations, cooperatives, real estate investment trusts, trusts, and non-U.S. companies registered to operate within Ohio.

The FinCEN website lists 23 types of entities that are not subject to BOI reporting. Regulated entities such as large operating companies and publicly traded companies, as well as businesses that meet other specific criteria, may be exempt. FinCEN provides a Small Entity Compliance Guide that can help business owners determine whether their company meets an exemption.

Access to FinCEN BOI Reports

FinCEN may only disclose BOI information to designated recipients, including U.S. and foreign government agencies, financial institutions, federal regulators, and the U.S. Department of Treasury, under specific circumstances with prescribed restrictions on use and security.

Small business organizations like the NSBA and the NFIB oppose the CTA, branding it burdensome, intrusive, overly punitive, and possibly unconstitutional. They argue that small businesses, lacking compliance teams or legal counsel, are disproportionately affected.

Penalties for CTA Noncompliance

Despite the recent ruling against the CTA, the law is expected to remain in force unless the Treasury suspends CTA enforcement for all 30+ million businesses obligated to file, and FinCEN is currently accepting reports from non-exempt businesses.

Failure to comply with the CTA could result in significant penalties for Ohio businesses, including fines of $500/day (up to $10,000) and up to two years of imprisonment. The CTA does, however, allow individuals who submit an erroneous report by mistake to submit an updated, accurate report within 90 days to avoid civil and criminal penalties.

Graham Law Can Help Ohio Businesses Comply With the CTA

The requirements of the Corporate Transparency Act have largely flown under the radar. Many Ohio businesses may not even be aware of the law, whether their company is required to report, and if so, what information must be reported.

With the law in effect since January 1, most Ohio small businesses, old and new, may need to take action or risk government sanctions.

Legal assistance is crucial when determining eligibility for exemptions and devising a compliance strategy. Graham Law’s Ryan Linn can help your business understand—and meet—CTA reporting requirements. Contact Ryan at (740) 454-8585 or send him a message.

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