Unless you have unlimited funds, you need investors if you want your business to expand. While you may want to protect your investors’ privacy, that may not always be possible.
The Corporate Transparency Act (CTA) has regulations that might require you to register anyone who provides funds to your company.
What is the Corporate Transparency Act?
The CTA went into effect on January 1, 2024. It mandates that companies submit detailed reports about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). A beneficial owner is any individual or group that owns or controls 25% or more of the company or exerts a lot of influence regarding company decisions. The purpose of the CTA is to increase transparency and make it more difficult for bad actors to conduct illicit activities, such as money laundering, corruption or terrorism.
The government requires the name, date of birth, address and unique identification number from a document such as a driver’s license or passport for anyone with beneficial ownership. This information only needs to be reported once unless it needs to be changed or updated. Failing to comply with these requirements can result in civil and criminal penalties with up to two years in prison and a substantial fine.
For a business owner looking to raise investment capital, the CTA can be both beneficial and burdensome. It allows the owner to build greater trust with their investors by demonstrating a commitment to ethical business practices and reducing the risk of fraud.
However, collecting and verifying beneficial ownership requires time. Furthermore, some investors may have privacy concerns about disclosing their information, which could make them hesitant about investing in a company that has to comply with CTA reporting requirements.
CTA reporting is concerning to any business owner who is looking to raise investment capital. To ensure regulatory compliance, working with someone who can review the situation and provide options would be beneficial.