At Propel, we’re proud to be champions of small business – helping entrepreneurs get more business done by handling all the back office and administrative tasks that so often burden small teams and sole proprietorships. We handle it all, from bookkeeping and HR to business strategy and formation. But one area where we hear the most grumbling from small business owners is compliance, recently made worse by the Corporate Transparency Act and its mandated Beneficial Ownership Information (BOI) report.

What is the CTA and why was it passed?

The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act for Fiscal Year 2021, was designed with the noble intent of curbing illicit activities such as money laundering and terrorist financing by requiring businesses to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), effective Jan. 1, 2024. While the objective is commendable (and we certainly don’t want money flowing to terrorists or cartels), the reality on the ground is altogether burdensome for most law-abiding small business owners. So we’re taking a stand. We believe the CTA, particularly its onerous reporting requirements, should be repealed or significantly amended to protect small business owners from undue hardship. Let’s talk about why.

The CTA has a disproportionate impact on small businesses.

The CTA mandates that all corporations, limited liability companies (LLCs), and other similar entities report information about their beneficial owners, which includes details such as full legal names, dates of birth, current addresses, and unique identifying numbers from acceptable identification documents. While large corporations often have the resources to handle such compliance requirements seamlessly, small businesses frequently do not.

Small business owners, who are often already juggling multiple roles from management to operations, now face the additional burden of navigating complex regulatory requirements. For many, the administrative costs associated with compliance are significant. These costs include time spent understanding the regulations, the financial burden of hiring compliance experts, and potential legal fees. Just imagine the impact on a mom-and-pop shop that operates on tight margins and limited budgets.

Of course, we try to make it easy on our clients by offering one-stop-shop, complete BOI filing and compliance review services, but our position still stands: the CTA needs to be amended to lift some of the weight that the act forces small businesses to carry.

Stifling entrepreneurship is never a good idea.

The entrepreneurial spirit is a cornerstone of the American economy – driving innovation, job creation, and economic growth. However, the CTA’s requirements can stifle this spirit. The fear of unintentional non-compliance and the associated penalties may deter individuals from starting new businesses. The risk of hefty fines and potential criminal charges for failing to comply with reporting requirements creates a chilling effect on entrepreneurship.

What’s more, the CTA does not provide exemptions or simplified reporting processes for truly small businesses, which could alleviate some of these concerns. The one-size-fits-all approach places small startups in the same category as large multinational corporations, ignoring the vast differences in their capacities and resources.

And don’t think the BOI report is a one-and-done administrative hiccup. The act delineates a number of occasions when a small business owner must file an update, like if your company moves offices, your suite number changes, or you bring on a managing partner. Failing to stay in compliance by neglecting to provide your most recent and up-to-date information could lead to additional penalties and fines.

Did we mention privacy concerns?

The CTA’s requirement for detailed personal information raises significant privacy concerns. Small business owners and their family members may be reluctant to have their personal information stored in a government database, which are so often susceptible to breaches and misuse. While the intention is to use this information solely for combating illicit activities, the potential for abuse and accidental exposure cannot be ignored.

In an era where data breaches are increasingly common, the security of personal information is paramount. The risk of sensitive information falling into the wrong hands poses a significant threat, particularly to small business owners who may not have the means to protect themselves adequately against identity theft and other forms of cybercrime.

Here are some suggested solutions and alternatives.

To address the legitimate concerns about money laundering and terrorist financing without unduly burdening small businesses, we at Propel propose several alternatives and modifications to the CTA that legislators should consider:

1. Provide exemptions for small businesses. For instance, implement exemptions for businesses with fewer than a certain number of employees or below a specific revenue threshold. This would ensure that the smallest entities, which are least likely to be involved in illicit activities, are not unfairly targeted.
2. Simplify reporting. Develop a streamlined reporting process for small businesses, making it easier for them to comply without incurring significant costs. Simplified forms and clear, concise guidelines can go a long way in easing the burden.
3. Extend deadlines. Provide extended deadlines for small businesses to comply with the reporting requirements. This would give hardworking entrepreneurs adequate time to understand and fulfill obligations without disrupting operations.
4. Offer support and education. We’re doing what we can to offer support and educational resources at Propel, helping small business owners understand the BOI requirements and ensure compliance. Government agencies can and should do more, like creating workshops, helplines, and online resources specifically tailored to small businesses.

Do you agree?

While the goals of the Corporate Transparency Act are laudable, we think the implementation, as it stands now, places an undue burden on small business owners. Repealing or amending the sections that impose onerous reporting requirements would alleviate these burdens without compromising the fight against illicit activities. Policymakers must recognize the disproportionate impact on small businesses and take action to ensure that the CTA supports rather than stifles the backbone of the American economy.

Share your thoughts on FinCEN, the CTA, BOI reports, or your experiences with arduous compliance requirements by sending us a message. If there’s any way we can help you achieve your small business goals or stay on top of these new regulations, just let us know!