Beneficial Ownership Reporting for Small Business Owners

The Corporate Transparency Act (CTA), enacted in 2021, introduced a significant change in the way businesses report beneficial ownership information (BOI). This legislation aims to curb illicit activities such as money laundering, terrorism financing, and other forms of corruption by increasing transparency in corporate ownership structures. This law was implemented by The Financial Crimes Enforcement Network (FinCEN), a U.S. Treasury Department Bureau.

A Note for Small Business Owners

Many small business owners may not realize that the BOI requirement applies to them and is not just limited to large corporations.

Who Must File a Report?

The entities who must file a report are defined as either:

• A domestic reporting company, which is a corporation, limited liability company (LLC), or any entity created by the filing of a document with the Secretary of State or any similar office under the law of a State or Indian tribe; or
• A foreign reporting company, which is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any State or tribal jurisdiction by the filing of a document with the Secretary of State or any similar office.

There are several types of entities which are exempt from the definition of “reporting company,” including, but not limited to:

• Certain governmental authorities
• Tax-exempt organizations
• Banks and broker-dealers
• Investment companies
• Insurance companies
• Accounting firms and “large operating” companies

A “large operating company” is defined as an entity which employs more than 20 full-time employees in the US, has an operating presence at a physical office within the US and has filed a federal income tax, or information return in the US for the previous year demonstrating over $5,000,000 in gross receipts or sales.

It’s crucial for all business owners to understand their responsibilities under this law to avoid penalties and ensure compliance. Refer to the 23 exemptions from the Corporate Transparency Act’s beneficial ownership information requirement to determine if your entity is exempt.

Key Deadlines and Compliance

Recently, U.S. Treasury Secretary Janet Yellen confirmed the filing December 31, 2024 deadline for entities formed prior to January 1, 2024. This confirmation emphasizes the importance of timely compliance to avoid potential penalties. Entities failing to meet this deadline may face substantial penalties, including fines and imprisonment.

For entities formed in 2024, the initial report is required to be filed within 90 days of the earlier of the date on which:

• It receives actual notice that its creation has become effective or that it is registered to do business; or
• The Secretary of State provides public notice that the reporting company has been created or registered to do business.

For entities formed in and after 2025, the initial reporting deadline decreases to 30 days from the formation date of the entity.

What is Beneficial Ownership Information?

Under the CTA, a beneficial owner is defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of the company. This threshold ensures that significant stakeholders are identified, enhancing transparency and accountability.

The Financial Crimes Enforcement Network, also known as FinCEN, is responsible for collecting and maintaining BOI data in a secure database that is not accessible to the public.

Steps to File Beneficial Ownership Information

1. Gather Required Information: Entities must collect detailed information about their beneficial owners. This includes names, dates of birth, addresses, and identification numbers from acceptable documents such as driver’s licenses and passports.
2. Submit the Report: The BOI report must be submitted electronically through FinCEN’s secure filing system, and there is no fee for filing.
3. Update Information as Necessary: If there are changes in beneficial ownership, entities are required to update their BOI reports within 30 days of the change.

Beneficial ownership reporting is not an annual requirement. A report only needs to be filed once, unless the filer needs to update or correct information.

Penalties for Non-Compliance

Non-compliance with the BOI reporting requirements can result in significant penalties:

• Civil Penalties: Entities that fail to file the required BOI reports or provide false information may face civil penalties of up to $500 per day until the violation is corrected.
• Criminal Penalties: Willful failure to report, or willfully providing false or fraudulent information, can lead to criminal penalties. This includes fines up to $10,000 and/or imprisonment for up to two years.
• Additional Consequences: Non-compliance can also negatively impact an entity’s reputation, relationships, and business operations, as well as lead to increased scrutiny by regulatory bodies.

Recent Updates for Hurricane Victims

FinCEN announced a filing postponement relief of up to six months for victims of the recent five hurricanes. The relief varies by hurricane and applies only to reporting companies whose initial or updated BOI filing deadlines fall within certain periods.

• Hurricane Milton: Refer to FIN-2024-NTC11 for details.
• Hurricane Helene: Refer to FIN-2024-NTC10 for details.
• Hurricane Francine: Refer to FIN-2024-NTC9 for details.
• Hurricane Debby: Refer to FIN-2024-NTC8 for details.
• Hurricane Beryl: Refer to FIN-2024-NTC7 for details.

Conclusion

Ensuring timely and accurate reporting is crucial to avoid these penalties and maintain compliance with federal regulations.

For more information, entities can refer to the FinCEN website for detailed guidance.