Small businesses are now required to submit additional paperwork to the Treasury Department following the enactment of the Corporate Transparency Act (CTA) on January 1.

The CTA requires companies to identify their owners, controlling entities, or other benefactors by submitting a Beneficial Ownership Information (BOI) report. According to the Treasury Department, a “beneficial owner” is an individual or entity that meets one of the following criteria: they own at least 25% of the business, they command a position of authority over the business, or they exert a high level of control over the business’s equity. Despite its title, the CTA applies to both domestic and foreign-owned companies of all levels, including small businesses, limited liability companies, and independent contractors.

The CTA is intended to combat unlawful activity and plug loopholes in existing corporate legislation. One of the policy’s primary aims is to limit the use of shell companies, which, while not expressly illegal, are sometimes used to launder money, dodge taxes, or keep the identities of benefitting parties hidden from the government. As such, BOI paperwork is submitted to the U.S. Treasury’s Financial Crimes Enforcement Network division. There is no fee for submitting a BOI report, but failure to do so can result in fines and other penalties.

Small businesses may need to consult a financial advisor to ensure their BOI reports are submitted properly, on time, and without error. Although the CTA outlines comprehensive definitions of controlling entities, every organization is unique, making it difficult for company leaders to accurately determine whether an individual or group qualifies as a “beneficiary owner.”