FILING REQUIREMENTS FOR SMALL BUSINESS OWNERS

If you are a small business owner—or plan to be one—you should be aware of a new reporting requirement.

The Corporate Transparency Act (CTA), passed in 2021, changed beneficial ownership rules, which is expected to impact 32 million businesses in 2024 alone. Suppose you own more than 25% of a company, directly or indirectly. In that case, you must be included in the company’s Beneficial Ownership Information (BOI) report, filed with the Financial Crimes Enforcement Network (FinCEN). This report includes your name, date of birth, address, and other identifying information.1

Your ownership in the business needn’t be direct. The report can include stockholders, partners, limited liability company (LLC) members, directors, and owners. Congress passed the CTA to boost its efforts to combat money laundering by increasing the reporting obligations of shell companies and other corporate entities that bad actors use to shield the identities of their underlying owners.1

We’re providing this update so you can stay up to date on current legislation. It’s not a replacement for real-life guidance, which should come from your tax, legal, or accounting professional. However, if you’re struggling to find more detailed information, we might be able to help. We can introduce you to tax or legal professionals who can discuss the new rules and share insights.

Types of businesses that may be impacted

The new BOI rules apply to a wide range of business types, including LLCs. The report must also include control persons who directly or indirectly control business decisions, even if their ownership falls short of the 25% threshold.1

Exemptions:1

• Sole proprietorships and general partnerships typically don’t need to file.

• Federally regulated businesses, such as publicly traded companies, financial institutions, and insurance companies, may be exempt.

• Businesses with a minimum of 20 full-time employees, more than $5 million in revenue, and a substantial footprint in the US may also be exempt.

Compliance Deadlines

For businesses formed before January 1, 2024: The deadline to report beneficial owners if they meet the ownership threshold is January 1, 2025.

For businesses formed after January 1, 2024: New companies established after the start of this year must report within 90 days of receiving an approved state business registration. Reporting obligations can become complicated if you wholly or partly own a company with a substantial stake in another company, especially if your ownership adds up to a stake of more than 25%.

Beneficial owners don’t necessarily need to file this report directly if the company in question files it appropriately.1

Currently, the CTA does not require annual reports; however, it does require updates when there are changes to previously reported information. Updated reports are due within 30 calendar days after the change.2

Potential penalties for not filing

The smallest businesses are not familiar with the new requirements. A 2024 survey of National Small Business Association (NSBA) members published in November showed that almost 47% of respondents had no idea what the CTA was, while another 25% said they had heard of the law but didn’t know whether they were required to report.3

This lack of familiarity with the law can have negative repercussions. Not filing ownership information to FinCEN can carry criminal and civil penalties. Willful failure to comply can also lead to fines of up to $591 a day for each violation.3

Don’t do it on your own

These rules can be overwhelming, so we hope this brief overview helps you think about your corporate compliance and strategic initiatives. For simple questions, you might find some answers on the Financial Crimes Enforcement Network website under Beneficial Ownership Information. If you’re confused about where to start, please reach out. We’re happy to help.

1 Federal Register, 2024

2 Morgan Lewis, April 19, 2024

3 WSJ.com, February 8, 2024