Lack of preparedness among those subject to impending Corporate Transparency Act obligations poses substantial compliance risks and consequences
Despite an effective date less than 90 days away, a significant portion of businesses subject to new U.S. “beneficial ownership” rules under the Corporate Transparency Act (CTA) are either unaware of the reporting obligations they face or are unsure about how they will comply. This exposes them to substantial compliance risk, according to a new Wolters Kluwer survey, with non-compliance resulting in hefty fines and, potentially, incarceration. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) estimates that the rule will impact approximately 32.6 million reporting companies in 2024 alone, with five million new reporting companies formed and registered every year going forward.
The survey findings, reflecting input from 669 U.S.-based companies, as well as 328 law firms and accounting firms, are based on a questionnaire exploring general awareness of and readiness for complying with the CTA’s new beneficial ownership rule. While the rule will apply to half (51%) of the firms that participated in the survey, 74% of those companies for which the CTA rule will be applicable indicated they only became aware of the rule by having taken the survey. Many respondents aware of the CTA were unsure (41%) whether the beneficial ownership rule, as implemented by FinCEN, would apply to them, despite their company’s reporting status and revenue size.
“Lack of understanding regarding the applicability of beneficial ownership reporting is significant—41% are ‘unsure’ among companies we surveyed—as is the lack of awareness about the CTA in general,” said George May, Vice President and Segment Leader, Small Business, for CT Corporation, a Wolters Kluwer business.
Among those respondents who felt the CTA applies to their organization, only 27% anticipate doing their own reporting, with 48% anticipating using third parties, and another 25% are unsure as to their plans.
“These are troubling figures, given both the percentage of businesses that are subject to the reporting requirements and where their organizations stand today in terms of preparing for an effective date that is right around the corner,” May added.
Feedback among CPA firms and law firms surveyed was similar, with only 54% confirming awareness of the CTA before having taken the survey, versus 46% who were unaware.
“Small businesses will look to their CPA firms and law firms for guidance on the CTA. Yet among those advisors, awareness of the Act is mixed and there is a high degree of uncertainty on the part they want to play in supporting their clients,” said Ross Aronowitz, Vice President, CT Corporation Law Firm segment, Wolters Kluwer. “Determining a plan of action and executing on that plan will be essential for professional advisory firms subject to the rule—and for their clients—in complying with this new law.”
The survey was conducted from June 15 to July 5 via Qualtrics, with Wolters Kluwer identified as the study sponsor.
The beneficial ownership reporting rule, part of the CTA and issued by FinCEN in September 2022, will require companies to collect, document and monitor previously unreported data on a company’s primary owners via completion of a Beneficial Ownership Information (BOI) report. Every person who owns or manages a limited liability company (LLC) needs to be aware of the new reporting requirement, first to determine if their company is subject to BOI reporting and, if so, to begin preparing to comply.
More information on navigating the new beneficial ownership rule is available by visiting the CTA Resources page.