On January 1, 2024, the business community witnessed a significant shift when the new Beneficial Ownership rules – part of the Corporate Transparency Act (CTA) passed by Congress in 2021 – went into effect. While the CTA was designed to reduce money laundering and illicit financial gain, its practical impact has significant implications on the way businesses report information to the U.S. Treasury Department.
The new mandatory requirement states certain business entities, including limited liability companies (LLCs), S corporations, and any other entities created by the filing of a document with a secretary of state (SOS) or any similar office to file a Beneficial Ownership Information Report (BOI) with the Financial Crimes Enforcement Network (FinCEN). The BOI will contain information about the individuals who own more than 25% of the entity or exert significant control over the business operations.
Notably, “large operating companies” receive an exemption from the new reporting requirements. These include companies that employ at least 20 full-time employees in the U.S., have an operating and physical presence in the U.S., have filed a federal tax return for the previous year, and reported gross receipts or sales of more than $5 million.
However, the majority of small business owners will fall within the parameters of companies that must submit a BOI to FinCEN, and will need to adhere to the new reporting requirements. Businesses formed before January 1, 2024 have until December 31, 2024, to file the BOI. Conversely, those formed after this date must file within 90 days of receiving notice from the SOS that their creation or registration is effective. However, these reports are not annual requirements, and only need to be submitted once. Reporting companies must file the initial BOI report, after that they will refile the report only if information needs to be corrected or updated.
There are consequences for knowingly failing to comply with the CTA. Fines of $500 per day accumulate for late filing, reaching up to $10,000. Additionally, there is potential criminal liability, with the risk of a two-year prison sentence for failure to comply. Business owners may also find themselves personally liable for willfully refusing to file.
Filing the BOI can be completed electronically through FinCEN's website. Businesses are encouraged to file the report themselves, as there is no fee associated with self-filing. Alternatively, for a streamlined process, businesses can opt to engage professional services to handle the filing on their behalf. However, it’s important that you ensure any third parties are legitimate before engaging their services to ensure the security of any personally identifiable information (PII).
Navigating the new requirements under the CTA is essential for small businesses to ensure compliance and avoid substantial penalties. Understanding the filing deadlines, required information, and consequences for non-compliance is crucial. By staying informed and taking prompt action, businesses can seamlessly adapt to this new regulatory landscape and ensure the security and integrity of their operations.