Key Podcast Highlights

  • The Corporate Transparency Act was established a couple years ago, under a bill passed by Congress. It’s being administered by the Financial Crimes Enforcement Network (FinCEN). Under this Act, businesses are being required to report all of their beneficial owners of their company and any other entities that they own.
  • This is being required because FinCEN is looking for potential bad actors that might be owners in U.S. companies. This requirement is more about security than finances.

What Are Recent Updates on the Corporate Transparency Act?

  • A few weeks ago, a federal judge in Alabama ruled that the act is unconstitutional. So, does this mean you do not need to report your beneficial owners? It does not mean that. In fact, the ruling doesn’t impact all businesses. The ruling was brought from the National Small Business Association (NSBA). The NSBA prevailed in the case and it was not a class action suit. So, only the 65,000 members of the NSBA are impacted and do not need to file. If you are not a member of the NSBA, you still need to file.

Transcript

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Gene (00:01):

Hey everybody, it’s Gene Marks and welcome to this week’s episode of the Hartford Small Biz Ahead podcast. Thank you so much for joining me. I wanna talk to you about the Corporate Transparency Act and some updates on it, which probably doesn’t affect you in the end, but you need to know about it ’cause I’m getting a lot of questions about it. Now, first of all, just to go back a little bit, and I’ve written about this before and talked about it on the podcast, the Corporate Transparency Act was established a couple years ago actually, under a bill that was previously passed by Congress. It is being administered by the Financial Crimes Enforcement Network. Basically, by the end of this year, 2024, you are going to be required to report all of the beneficial owners of your company or any other entities that you own.

Gene (00:52):

Now, this includes corporations, pass throughs, partnerships, state and benefit plans. All of these entities, not sole proprietors, by the way, not sole proprietors, but all the other ones I’ve just mentioned. You have to go onto the Treasury’s website. You can Google to easily find its Corporate Transparency Act, treasury. You have to fill out a form where you are disclosing your beneficial owners. These are not only shareholders of the company, but also people that exercise substantial control over your company. You have to do this for every company. There’s no fees to file this, but if you don’t file it by the end of the year, you could be subject to up to a $10,000 penalty for each entity that’s not been filed. So, I know maybe you’ve got, you’re an owner of three or four different companies, shell companies, small companies, whatever, you’ve got S corporations or partnerships, all those have to be included in the filing.

Gene (01:48):

So you gotta report this stuff by the end of the year. Now, there are 23 types of entities that are exempted from this rule. There are mostly companies like accounting firms and some insurance firms, publicly held companies, banks, and credit unions. But also what’s excluded is any company that has more than 20 U.S. based employees and revenues over $5 million, they’re excluded as well from this role. But really, of the 32 million small businesses that are out there, 6 million are employer owned. The rest of them are not. These are a lot of individual small businesses, and that’s who the Department of Homeland Security wants to know about. And that’s why they’re having the Treasury Department do this. The reason why they’re doing this is because they’re looking for potential bad actors that might be owners in U.S. companies. So that’s why they’re asking for this information. So it’s a security thing. It’s not a financial thing. As you can imagine, there are some groups and some people that are sort of up in arms about this because it’s this sort of people claiming it’s an invasion of privacy or affecting them…

Gene (02:58):

From a corporate standpoint. And they don’t want to disclose this information. So, there was some lawsuits and just a couple of weeks ago, a federal judge in Alabama ruled that the Corporate Transparency Act is unconstitutional. Now, you might say like, well geez, it’s unconstitutional. So I guess that means I don’t have to worry about it anymore. Not true. You have to still be concerned about the Corporate Transparency Act because the judge’s ruling in Alabama doesn’t really affect you, most likely. Why? Because the ruling was in a specific case that was brought from the National Small Business Association. They represent about 65,000 small business owners of the 32 million that are part of this reporting requirement. They’re the ones that contested this ruling, and they’re the ones that prevailed in this case. However, it wasn’t a class action suit.

Gene (03:59):

So the only winners in this case are the 65,000 members of the National Small Business Association. If you are not a member of the NSBA, you still have to file. Not only do you still have to file, but the Treasury Department has said in writing that it’s gonna continue to require the remaining 32 million small businesses to report their beneficial ownership. And the Treasury Department is also saying they’re appealing the Alabama Court’s decision as well. Now, other lawsuits have also been filed, one of them with an association in Michigan. So, just so you know, then they probably won’t be the last, but again, the Treasury Department is fighting this. And frankly, many attorneys I’ve spoken to say there probably won’t be a resolution to this whole thing until at least 2025 and maybe even beyond, depending on how it works through the courts.

Gene (04:49):

Maybe it’s something even the Supreme Court has to decide. Now, is this constitutional, is it not constitutional? Listen, there are people from both sides that, that have their opinions. Obviously, the people on the side of small businesses says that it’s a violation of privacy. It far exceeds what the federal government is allowed to do. And then there are advocates for the rule that say that it doesn’t do that. They say that the abuse of anonymously owned companies by foreign and domestic criminals is a global problem. And this is something that the U.S. government is trying to address and that they’re fully able to do this and it’s not unconstitutional. So, you know what? We’re gonna have to let the lawyers and the courts fight that out. But the bottom line is this, unless you’re a member of the National Association of Small Businesses, I mean, you have to file this report. For any entity that you own, um, or have beneficial ownership of, which could be just people that are controlling the entity or have influence over it. You have to disclose contact information about…

Gene (05:56):

Yourself, um, in this filing, and you better get the filings done by the end of the year. Or you could be facing steep fines. My advice is that you talk to your accountant or your attorney and you jump on this. Already a million businesses have complied. I’m gonna have to comply. It’s something I’m doing like everybody else. So, it does affect this ruling in Alabama, it does not exclude anybody other than the 65,000 businesses that are members of the National Small Business Association. So that’s your update on the Corporate Transparency Act. The bottom line is it is still in effect, the treasury is still going after it. They’re still requiring it. Unless you are part of this lawsuit from the National Small Business Association in Alabama, you are still required to comply with this rule. So you better comply, get with your accountant or your attorney and make sure that, you submit the information that the Treasury Department is asking for. My name is Gene Marks, and you have been listening to this week’s episode of the Hartford Small Biz Ahead podcast. Hey, if you need any help or advice or tips in running your business, visit us at SmallBizAhead.com or SBA.TheHartford.com. Hope you find this helpful. I’ll be back to you next week with some other tip to help you run your business. Thanks. Talk to you then.

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