Legal Alert: Independent Consultants May Need to Comply with New Corporate Transparency Act
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Although the Corporate Transparency Act (CTA) sounds like it only applies to large corporations, it affects you as an independent consultant if your business is structured as anything other than a sole proprietorship. If your business is an LLC, C-corporation, or filing taxes as an S-corp, you are legally obligated to fulfil the reporting requirement that kicked in at the start of this year. This article tells you what you need to know and how to comply so you can avoid unnecessary fees and penalties.
What it is
The CTA requires small businesses, their owners, and those involved in creating LLCs and corporations (for example, companies like LegalZoom) to clarify who has substantial control in the company. Also known as “a beneficial ownership information reporting requirement,” the purpose of the CTA is to help the government detect, prevent, and prosecute money laundering, terrorism, and other illicit activity. (Enforcement agencies often “follow the money” to root out criminals.)
The Beneficial Ownership Information (BOI) requirement of the CTA exists to identify the individuals who own or control the company either directly or indirectly. If you’re a solopreneur, you’re probably the only owner of your business so it will be easy to comply, unless, of course, you’re involved in money laundering or other shady business. 😉
What you need to do to comply with the law
If you are doing business as a sole proprietor, you don’t need to do anything; you’ll be exempt according to this more detailed article by the International Association of Commercial Administrators.
If your business is not a sole proprietorship, you need to report your ownership information to the government. The process is free and straightforward; you don’t need to pay LegalZoom or anyone else to do this for you, though they’ll happily do it for $99 or more.
Here’s how to submit the Beneficial Ownership Information Report (BOIR) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) in about 15 minutes.
Be prepared to provide the following information: your email address, phone number, tax ID number (EIN or SSN), and either your passport number or driver’s license number plus a copy of whichever document you’re using to verify your identity.
Go to the filing site at https://boiefiling.fincen.gov/ and select “File BOIR.”
Look for the questions marked with a red * and ignore the others unless you do not own your company. If someone else or another entity owns any part of your company, you will need to supply that information in Part III of the form.
Need more information? Go to FinCEN’s BOI homepage.
Filing deadlines
If you started your business before January 1st, 2024, you have until 2025 to complete the online form. Companies started after January 1st, 2024 have a much tighter time frame: you have just 90 days from the date of your company's registration to complete the online BOIR form. (Per the filing instructions: “If a reporting company is created or registered to do business in the United States on or after January 1, 2024 and before January 1, 2025, it must file its initial BOIR within 90 days after receiving actual or public notice that its creation or registration is effective.)
Legal challenges to the CTA
Now that you’re aware of the CTA, you may see headlines in the press about it being fought in the courts. Small business associations assert that the law is "bureaucratic overreach” as well as a constitutional infringement. For example, the National Small Business Association (NSBA) filed a lawsuit to overturn the CTA, claiming it forces small-business owners to disclose sensitive personal information to a government database. While it’s true that you have to submit your information, it’s data the government already has in other places anyway.
Don’t wait to comply with the law; it will take years for any court challenges to be resolved. Take fifteen minutes and fill out the BOIR now before you forget!
