Small business owners worry about new transparency rules

The Corporate Transparency Act, set to take effect January 1, 2025, will require small business owners to disclose more information about their businesses to the federal government. This new regulation may disproportionately impact minority-owned firms, who already face challenges in securing funding and resources.

Corporate Transparency Act Overview

The Corporate Transparency Act was passed by Congress in 2021 as part of the U.S. Treasury Department’s efforts to combat money laundering. The law establishes national requirements for businesses seeking certification and mandates that company data be stored in a restricted database managed by the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury. Prior to this law, corporate registration was handled at the state level, a process considered simpler for small businesses.

Impact on Small Business Owners

The act will affect over 32 million small business owners nationwide, including thousands in Massachusetts. It requires businesses with fewer than 20 employees to provide the legal name, a unique ID number, and an image of acceptable identification for each “beneficial owner.” Concerns have been raised that this represents an overreach of the federal government and poses risks for entrepreneurs of color.

Legal Challenges and Concerns

Lawyers for Civil Rights filed a lawsuit against the U.S. Treasury in May, seeking to have the Corporate Transparency Act struck down. A hearing is anticipated in 2025. The law has also sparked concerns among immigrant business owners, particularly with the incoming Trump administration’s stated plans for increased deportations, as the disclosure of sensitive information could potentially lead to immigration consequences.

Financial Penalties and Compliance

Failure to comply with the Corporate Transparency Act can result in significant financial penalties, including daily fees of $500 or even imprisonment. A survey of 50 clients by Jeanette Velasquez, founder of Velasquez Tax & Business Services in Cambridge, revealed that most were unaware of the law and its associated penalties. Velasquez is assisting her clients with compliance to minimize the burden on their businesses.

Additional Considerations

Advocates argue that entrepreneurship is crucial for closing the racial wealth gap. They contend that the government should support small businesses and communities of color rather than enacting regulations that could stifle entrepreneurship. Some, like Viergelyn Chery-Reed, founder of GroundingHearts, advocate for increased oversight and transparency regarding the collection and use of data gathered under the Corporate Transparency Act, questioning potential infringements on constitutional rights.