Adobe Stock / Bill Perry

A new law meant to help prevent corporate corruption will require that companies report key personnel to the federal government.

Called The Corporate Transparency Act, the law is meant to help reduce money laundering, tax fraud, and other illicit activities by better accounting for smaller companies, making it harder for them to stay under the radar.

The law will require companies to provide key information about their beneficial owners — all senior officers and individuals who own or control at least 25% of a company. The person who files the information, if not one of the beneficial officers, also will need to provide certain information about themselves.

Companies that provide false information or fail to report could face penalties of $500 per day up to $10,000, or up to two years of jail time.

The requirement does not apply to nonprofit organizations or larger companies — those with at least 20 full-time employees located in the U.S., that generated at least $5 million in sales within the U.S. the previous year, and that have a physical location in the U.S.

“It’s going to apply to almost the entire service section and most builders and retailers,” said Steve Getzoff, outside national counsel for the Pool & Hot Tub Alliance, and a partner in New York-based Lester Schwab Katz & Dwyer.

The law goes into effect this Jan. 1, however the compliance window varies, depending on when companies were founded. Existing firms have the most time, until Jan. 1, 2025.

For companies established beginning Jan. 1, 2024, the compliance window is still being determined. Currently, the language only gives new firms 30 days to report their information. However the agency behind the law, the Financial Crimes Enforcement Network (FinCEN), is considering extending the window to 90 days, Getzoff said.

The online system for accepting the required information is still being set up, so companies cannot file immediately, Getzoff added. Once it is online, FinCEN may revert back to the 30-day window for newly established companies.

After the initial reporting, firms must update the information within 30 days of making any change.

“This is not just a one-time thing,” Getzoff said. “If there’s a change in your beneficial owners or officers, then that might require a supplemental report.”