By: Mark Glennon*
Ownership of almost all small businesses has always been private. If their stock isn’t publicly traded, most companies haven’t needed to disclose the identity of owners anywhere.
That’s over for most U.S. companies.
The Corporate Transparency Act (CTA) went into effect January 1, requiring most businesses to identify their beneficial owners (someone who owns at least 25% of the company or who has “substantial control” over it) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). And there’s certainly a high risk of political abuse.
Just yesterday, news came of evidence that the FinCEN is flagging for attention transactions that include words like “MAGA” or Trump.
And who trusts the federal government not to leak what are supposed to be confidential reports? Even Trump’s tax returns were leaked.
The new law applies to U.S. corporations, limited liability companies and any other entities created by the filing of a document with a secretary of state or any similar office in the U.S. It also applies to companies formed under the law of a foreign country that have registered to do business in the U.S.
Exemptions are described here, but they generally are narrow. Also, the law does not apply to companies (a) with at least 20 full-time employees in the U.S.; AND (b) that file a U.S. federal income tax or information return showing more than $5,000,000 in U.S. gross receipts or sales for the prior fiscal year; AND (c) have an operating presence at a physical office in the U.S.
It’s a dramatic change and will be a headache for many small companies. An estimated 30 million U.S. businesses will now have to file. The filed disclosures do not become public but may be used for law enforcement and national security. The law is intended to help stop and prosecute things like money laundering, tax fraud, terrorist funding and other illegal activities.
Penalties for non-compliance can be harsh. The CTA establishes civil penalties ($500 per day, up to a total of $10,000) and criminal penalties (up to two years of imprisonment) for individuals who willfully fail to file.
The Illinois Secretary of State office will be taking on the task of notifying Illinois businesses about the law and developing materials to help explain it, which the Chicago Sun-Times wrote about here. Salute to both of them for that. Secretary of State Giannoulias and the state are not responsible for the new federal law in any way, so his office’s assistance will no doubt welcome to many unaware or perplexed small business owners.
The law enforcement reasoning behind the CTA is no doubt valid, but it’s also true that many law-abiding businesses and their owners have valid reasons for privacy. They won’t be happy with the new law.
Based on over thirty years earlier practicing corporate law and making venture capital investments, I can attest to many instances where privacy of ownership was important for a variety of business or personal reasons. I am not now a practicing lawyer, so please obtain your own legal advice.
The law passed in 2021 as part of related legislation with bipartisan support, overriding a veto by President Trump. It also had substantial support in the financial community and with some business groups, such as the U.S. Chamber of Commerce.
You won’t find many news reports on the CTA but plenty of good law firms have published advisories about the new law, which you can find by searching “Corporate Transparency Act.” Filing is done online at FinCEN’s website, which also links to FAQs and further information.
*Mark Glennon is founder of Wirepoints.
This column was updated to add the paragraph about risk political abuse.
Audio and summary 
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
Currently money is anonymous, people can do transactions freely without the governments nose in it. This law erodes that freedom. Just wait until our money becomes software in the form of CBDC. At that point the government will know every cent exchanged, every transaction even between people. At that point they can just shut off your money if you made a transaction the current regime dislikes.The EU will impose this madness upon themselves first, I hope we don’t, they are already locking people up for their opinions. Speech, censorship, direct confiscation of money, etc these are the goals of the… Read more »
While I agree with you about most of your points I want to point to the Healthcare Business. In this case it would be beneficial to know who was owning these private companies.
Insurers are only allowed 15% profit under Obummercare. Therefore, they no longer pay out claims.
Instead, they pay a private third-party (owned in part by them) to make those payments. This increases their costs and they get their 15 on the higher costs.
Then they make money from the middleman.
Optima is one example
Why should the government ever tell a private company how much profit they can make anyway. Your premise is based on government control is “good” and we need to give government more tools to control these private companies. Many people feel the government has too much power and this just increases it.
Arthur, even if you were right about that use of the info, it won’t be available for it. Only law enforcement and national security agencies will see it (unless some of it leaks for political use.)
That couldn’t happen. Right WaPo?
Exemptions …
(c) have an operating presence at a physical office in the U.S.
AND have more than $10M sales and 20 employees. I guess I need to bold that.
FinCEN Guidance offers an online solution for Beneficial Ownership Information (BOI) reporting, required for many LLCs, corporations, LPs, and LLPs from January 2024. It simplifies compliance with the Financial Crimes Enforcement Network’s regulations by providing an intuitive, secure platform. The service is tailored for both single and multiple reporting companies, catering to small businesses and compliance professionals. FinCEN Guidance emphasizes ease of use, security, and accuracy in meeting legal requirements, enabling businesses to focus on their core operations without the stress of complex regulatory compliance.
For more detailed information, please visit: FinCEN Guidance
I guess they are watching us already, though nonprofits are exempt from reporting.
This law is not just ripe for political abuse; that is its sole purpose. In case the COVID lockdowns did not make it clear enough that they are after small business.
Obviously no CTA ownership problem with Gotion for JB & crew
Hmm, are pimps subject to “beneficial ownership” laws?
Ripe for abuse by our out of Control Government. Our politicians are some of the most corrupt, lawless abusers of following the law (insider trading, removing toilets from their homes, misappropriating financial contributions, pay to play, etc) and yet they pass legislation to hold businesses accountable – but never themselves.