In 2021, Congress passed an under the radar law that could have significant financial ramifications for small business owners. The Corporate Transparency Act is aimed at enhancing transparency and combating financial crimes such as money laundering, terrorist financing, and tax evasion. What does this mean for small business owners?
Starting in 2024, many companies must report Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department. Failure to report BOI within the allotted timeframe may result in penalties of up to $500 for each day the violation continues. While the company itself is responsible for filing the report with FinCEN (each individual owner does not file the report), an individual who qualifies as a beneficiary owner of a company may be subject to criminal penalties of up to two years in prison and a fine of up to $10,000 if the report is not filed.
The new reporting rule does not apply to all companies, only companies that are incorporated (LLC, S Corp, or C Corp). If your company is a sole proprietorship or a partnership the reporting rules do not apply. In addition, the reporting rule exempts twenty-three specific types of entities from the reporting requirements. Most of the company specific exemptions are for companies that operate within the financial industry or is an inactive entity. FinCEN provides the full list of exempt entities at www.fincen.gov.
In addition to reporting the owners of a company, companies need to report all individuals who exercise substantial control over the company. FinCEN defines substantial control if an individual meets any of the four general criteria: (1) the individual is a senior officer (President, CEO, CFO, COO, General Counsel); (2) the individual has the authority to appoint or remove certain officers or a majority of directors the company; (3) the individual is an important decision maker; or (4) the individual has any other form of substantial control over the reporting company.
The good news is filing the Beneficial Ownership Information Report is rather simple and free of charge. Companies can file the Beneficiary Ownership Information Report electronically through FinCEN’s website: www.fincen.gov/boi. The deadlines for filing the report are:
- If your company was created or registered prior to January 1, 2024, you will have until January 1, 2025 to report BOI.
- If your company is created or registered in 2024, you must report BOI within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier.
- If your company is created or registered on or after January 1, 2025, you must file BOI within 30 calendar days after receiving actual or public notice that its creation or registration is effective.
- Any updates or corrections to BOI that you previously filed with FinCEN must be submitted within 30 days.
Ultimately, for business owners that are aware of the new reporting requirements, the filing of the Beneficial Ownership Information Report should be a rather minor administrative headache. However, forgetting to file or update within the deadlines can be a costly mistake that could cause significant financial harm to the company. If you are uncertain if your company is required to report Beneficiary Ownership Information we recommend you seek the advice of your legal counsel.
