For successful individuals who own a small business or run a foundation, the Corporate Transparency Act represents a significant shift in regulatory requirements with far-reaching implications.
A widely overlooked piece of 2021 legislation requires businesses with fewer than 20 employees to file ownership information with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department.
Unfortunately, most affluent entrepreneurs either don’t know about the Corporate Transparency Act or misunderstand it. Failure to comply can incur significant penalties, both financial and criminal.
Aimed at curbing illicit financial activities, this legislation creates a database to prevent the misuse of anonymous shell companies. While the intentions are noble, lack of awareness poses a significant challenge. According to Todd McCracken, president of the National Small Business Association (NSBA), nearly half of the surveyed small business owners had no knowledge of the Act's existence.
Non-compliance can have severe consequences, including criminal and civil penalties for businesses and their senior executives. The fine for willful failure to comply can amount to $591 per day for each violation.
Businesses that open their doors in 2024 have an even shorter window of 90 days to file their reports. This makes awareness and action imperative.
One of the primary causes of this lack of awareness is unfamiliarity with FinCEN among entrepreneurs, as that agency has traditionally interacted directly with banks and financial institutions. However, the complexity of the legislation requires a more intensive approach to accomplish widespread understanding.
FinCEN remains focused on driving compliance rather than strict enforcement in the initial phase. However, successful small business owners should not overlook the importance of staying informed and proactively taking steps to avoid potential penalties and legal entanglements.
We encourage you to contact your legal and financial advisors to discuss how the Corporate Transparency Act may affect you and your business obligations. By taking early action to create a reporting plan, you can significantly reduce your risk of financial or criminal exposure.
The information provided in this article is for educational purposes only and should not be considered professional advice. Please consult with a Lockton representative for information regarding specific insurance products and services.