Small Businesses Are Fighting Back Against a New Set of Federal Regulations That Few Have Even Heard Of

The entrepreneurial spirit of the United States is a source of pride. In the past year, a record number of nearly 5.5 million new businesses filed applications, showcasing a vibrant business landscape. However, a new challenge has emerged for small businesses forming in 2024, as they could face penalties of $500 a day and potential jail time for non-compliance with unfamiliar federal regulations.

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, has quietly introduced new regulations under the Corporate Transparency Act (CTA) to protect the financial system from illicit activities like money laundering and terrorism. These regulations mandate that all new businesses disclose their “beneficial owners” within 90 days of formation, with existing small businesses required to comply by Jan. 1, 2025.

The requirement for small businesses to reveal personal information about any “beneficial owner,” regardless of financial investment, has taken many by surprise. Some small-business associations have filed lawsuits against the CTA, with Michigan’s SBA challenging the constitutionality of the law.

Small Businesses in Michigan File Suit

The Small Business Association of Michigan (SBAM) has filed a lawsuit in the U.S. District Court for the Western District of Michigan, arguing that the law forces small businesses to divulge sensitive information without any prior legal accusations.

Brian Calley, president and CEO of SBAM, expressed concerns about the indiscriminate treatment of small-business owners and the potential violation of their Fourth Amendment rights.

Most Small Businesses Are Unaware

A significant issue with the CTA is the lack of awareness among small businesses, leaving them vulnerable to fines for non-compliance. Small-business consultant Gene Marks believes that the news about these regulations may not gain widespread attention until the end of 2024, leading to a rush for compliance.

While some view the CTA as a privacy concern, others see it as a potential revenue source for legal and accounting professionals. However, the lack of public awareness about the regulations remains a pressing issue.

Homeowners Associations Are Worried

Homeowners associations and condominium associations are also apprehensive about the implications of the CTA. Dawn Bauman, a representative of the Community Associations Institute, expressed concerns about the penalties and the potential impact on property assessments and management practices.

The CAI and its legal team have sought exemptions from FinCEN, but the bureau has indicated that exemptions are not currently being considered.