This article by Tom Spadea was featured in the June 2024 issue of Franchise Dictionary Magazine.
What Do Franchises Need to Know About The Corporate Transparency Act?
The Corporate Transparency Act (CTA) has created an obligation for all businesses to file with the federal government information on who owns and controls every company currently in existence or to confirm they are exempt from filing. Our recommendation is that your CPA, who files your tax returns and will have most of the necessary information already, be the professional that you contact to ensure these filings are done before the end of 2024 for entities formed before Dec. 31, 2023. Any newly formed entities should have the filing done when the entity is created.
The Corporate Transparency Act is a federal law that became effective on Jan. 1, 2024. The CTA imposes reporting requirements on small- and medium-sized business entities, impacting most franchisors and franchisees. The reporting requirements are aimed at fighting money laundering, terrorist financing, financial and tax fraud and other corrupt practices both internationally and within the U.S. It is being challenged in court on constitutional grounds for being an unconstitutional overreach by Congress; however as of this writing it has not been overturned.
The CTA requires reporting entities to disclose information about their beneficial owners. Beneficial owners are individuals who exercise substantial control or own at least 25% of the ownership interests of the reporting entity.
Reporting entities include corporations and limited liability companies (LLC) created under the law of any state or Indian tribe. All reporting entities must disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network, or FinCEN. BOI includes name, date of birth, physical home address and photograph. The CTA requires ongoing compliance and updates when the reported information changes.
And finally, beware of scams! Do not engage, and tell your franchisees not to engage, with any correspondence that requests payment, sends you a URL to click or QR code to scan, or claims to be a government agency requesting compliance. If you want to do this yourself, there is no fee to file your BOI with FinCEN directly and FinCEN will not send you such requests.
To see all of Tom’s featured articles on The Franchise Dictionary Magazine, visit this page.