Minority entrepreneurs will now have yet another barrier to overcome on top of the many others they already encounter. The new federal Corporate Transparency Act, which will require small business owners to disclose more information, will take effect at the start of 2025. Minority-owned businesses might be more affected.
According to Viergelyn Chery-Reed, founder of the Jamaica Plain psychotherapy firm GroundingHearts, “Minority-based businesses have enough hurdles trying to get capital, trying to get funding, trying to get resources so we can operate our businesses successfully.”
Businesses must meet national standards outlined by the recently passed Transparency Act in order to be certified. Congress passed the law in 2021 as part of the U.S. Treasury Department’s anti-money laundering campaign. Data about the company will be kept in a restricted database for the U.S. Treasury’s Financial Crimes Enforcement Network, or FinCEN.
Oren Sellstrom, litigation director at Lawyers for Civil Rights, says that prior to the new law, corporate registration was managed at the state level. For small firms, this meant contacting the relevant state agency and filing articles of incorporation, which has been a very straightforward procedure.
According to Sellstrom, this “overreach of the federal government” will now affect over 32 million small business owners nationwide, which could pose significant hazards for entrepreneurs of color.
The law targets small enterprises, defined as those with fewer than 20 employees, and is scheduled to go into force on January 1. According to the law, companies must give each “beneficial owner” their legal name, a unique ID number, and a picture of one authorized piece of identification. The CTA will affect thousands of Massachusetts company owners out of the 32 million that would be impacted.
“The process was much simpler and more efficient at the state level, and data was not transferred to a large federal database that is susceptible to breaches like all databases are,” Sellstrom stated. In May, attorneys for Civil Rights sued the U.S. Treasury on behalf of multiple organizations, requesting that a federal judge invalidate the CTA. According to Sellstrom, a hearing is anticipated in 2025.
According to Sellstrom, entrepreneurship is essential to reducing the racial wealth disparity, which has been a hot topic in Greater Boston. “Instead of passing burdensome and invasive legislation that will stifle entrepreneurship, the federal government ought to be supporting small businesses and communities of color,” Sellstrom stated.
