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What the Corporate Transparency Act means for small businesses

On Behalf of | Sep 18, 2023 | Bankruptcy

Smaller businesses in the Toledo area provide services ranging from HVAC repair to retail shopping opportunities. Many of those businesses employ either an LLC or a corporate structure, as these structures afford members and stakeholders personal liability protection that partnerships and sole proprietorships simply do not.

These companies need to comply with both Ohio state laws and federal regulations for corporations. As of January 1st, 2024, there will be a new requirements for limited liability companies (LLCs) and corporations. A new law enacted in 2021, called the Corporate Transparency Act, aims to curtail money laundering and efforts to fund terrorism or organized crime. This law will impose new requirements on organizations operating in Ohi and across the United States.

What does the Corporate Transparency Act require?

Reporting companies will need to provide a report affirming who has an ownership interest in the business. Both domestic companies created through paperwork filed with state or federal entities and foreign companies started in another country but doing business in any state will need to complete a report. The report will be due either shortly after the time of their formation or within one year of the law going into effect, which will make the deadline for existing companies January 1st, 2025. After the new law rolls out in 2024, new businesses will have to submit a report within 30 days of their creation.

The report will include details about the organization and the “beneficial owners” who have at least a 25% ownership interest in the company. The company will also need to provide information about the specific individuals who filed the paperwork to create the organization. It may be necessary to update the report filed when the ownership interests of one party transfer or if there are any major changes to the organization itself.

The Financial Crimes Enforcement Network (FinCen) has the responsibility to collect and review the reports submitted by businesses. In theory, the disclosure of the identities of those involved with different organizations could help connect legal entities that otherwise seem completely separate and could help the federal government track and prevent money laundering efforts.

Being aware of changing business requirements can help those who own, operate or invest in companies to better ensure their compliance with crucial federal transparency rules. Seeking legal guidance can help to provide this clarity on an ongoing basis.