Under the Corporate Transparency Act (“CTA”) The federal government has created new paperwork requirements for small business owners effective January 1, 2024 through what is called FinCEN Beneficial Ownership Information Reporting (“BOI”). Penalties for failure to comply with BOI requirements are substantial: up to $500 per day, and criminal penalties of up to two years in prison and a fine of up to $10,000. 

The first step is determining whether the reporting requirements are applicable to your business, because there are numerous exemptions for larger companies. Thes exemptions to CTA reporting apply to institutions like banks, credit unions, securities dealers, insurance companies, accounting firms, or “large operating companies,” which are defined as having more than 20 full-time employees in the U.S. with gross income of more than $5 million. Unless you own a small business exempt from these requirements, these exemptions will not apply.

 Businesses With Multiple Owners

Trusts and Employee Ownership

For trusts, the BOI Report must include any individuals with authority to dispose of trust assets (such as trustees), as well as beneficiaries of the trust who have a right to demand a distribution of trust assets.

Employees who own at least 25% of the beneficial interest are generally not required to be included in the BOI Report as long as they (1) are subject to the owner’s directions and can be fired, (2) derive income from their ownership passively, and (3) are not senior officers of the company.

Company Applicant

Moreover, the “company applicant” is required to be disclosed. The company applicant is the person who created the company, such as by filing it with the applicable Secretary of State. An owner of a company generally is not required to be the one to file a new company (it is often handled by attorneys), but even though these applicants are not owners, they must nevertheless be disclosed in the BOI Report. The company applicant is equivalent to what is often called the “organizer” by a Secretary of State.

One caveat to the requirement of identifying the company application is this: if the company was formed before January 1, 2024, the company applicant is not required to be disclosed. For all companies formed after January 1, 2024, however, they must be included in the BOI Report.

For companies filed in the U.S., the CTA requires the following information to be gathered in advance for the BOI Report. Be aware that this is more information than is required for the formation of a company with the state. For the company filing, the following information is required:

• Legal name of the corporation or LLC,

• Address of the company,

• Jurisdiction that the company was formed in, and

• The EIN or TIN assigned by the IRS.

Then, for each beneficial owner, the following information is required:

• Full legal name, 

• Address,

• Assigned number from a U.S. passport, driver’s license, or state identification card, along with the state of issuance, and

• Copy of the passport, driver’s license, or other state identification card.

(Yes, you must upload a copy of the identification used to the federal government.)

One other exception is if the ownership interest in a company is owned by a large operating company (see definition above). If, for instance, a 25% ownership interest in a small business is held by a corporation with more than 20 employees and more than $5m in revenue, no individual needs to be reported – rather, only the name of the large operating company must be disclosed.

 Deadlines for Filing BOI Reports

Be aware of the deadlines for filing BOI Reports. For companies created prior to January 1, 2024, they have until the end of 2024 to file their reports. However, for companies filed during the year 2024, their reports are due within 90 calendar days of filing. This requirement is tightened on January 1, 2025, which will shorten the filing deadline to 30 days after the company is formed. 

BOI Report Update Requirements

FinCEN wants current information on all beneficial owners at all times, so an updated BOI Report must be filed when there is a change in the beneficial owner, or when an error is detected. Thus, if your small business takes on a new partner or new manager, the updated report must be filed within 30 days. Again, this applies to anyone who has “substantial control” over the business, as explained above, as well as when an owner dies and one of their heirs inherits an ownership interest in the business.

Perhaps the only change that is not required to be reported is when the company terminates or dissolves. If your business goes out of business, no additional BOI Reports need to be filed.

Why Knowledge About BOI is Important

In conclusion, the Corporate Transparency Act’s new reports will take a substantial amount of additional time for new and existing small businesses, requiring the gathering and maintenance of current information about all owners at all times. Because of the harsh penalties for violating the federal government’s requirements, business owners should consider getting advice from experienced attorneys before submitting BOI Reports.

Where You Can Find Out More About BOI

Filing of BOI Reports may be done via online forms through FinCEN, available HERE. 

For more information, FinCEN has written a Small Entity Compliance Guide that gives more details about the filing and exemption requirements under the Corporate Transparency Act, available HERE.