SMALL BUSINESS OWNERS & BENEFICIAL OWNERS
Be Sure to Find Out If Your Business is One of Millions to be Affected By the Corporate Transparency Act
Background – Corporate Transparency Act (CTA)
The Problem: Congress identified a widespread tactic by individuals with malicious intent to affect national security and economic integrity. Specifically, the scheme is to conceal or profit from the ownership of U.S. companies to facilitate illegal operations.
The Solution: The Corporate Transparency Act (CTA) was enacted by Congress in 2021. The purpose of the legislation is to curb unlawful financial activity including tax fraud, money laundering, and terrorism financing. Compliance requires many companies, domestic and foreign, doing business in the United States to report information about the individuals who own or control them.
Under the amended legislation, businesses that meet certain criteria must comply by submitting a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The BOI Report identifies individuals who are associated with the reporting company.
“Small Business” Defined
On November 29, 2023, FinCEN released a final rule to implement the CTA’s reporting requirements. The BOI reporting requirement applies to all domestic and foreign reporting companies categorized as “small businesses”.
Corporations and LLCs are the only business entities referred to in the new rule. FinCen has commented that it believes sole proprietorships and most general partnerships will not have to file a report.
Corporations or LLCs with less than $5 million in gross revenues and/or having 20 or fewer employees are defined as “small businesses” and must file an initial report of changes in ownership with FinCen no later than January 1, 2025. Effective January 1, 2024, any changes in ownership must be reported within 30 days of ownership transfer. Failure to report may result in a fine of $500 per day and/or criminal penalties.
Companies with more than 20 full-time employees and gross annual receipts in excess of $5 million may qualify for an exemption as a “large operating company”.
Who is Considered a Beneficial Owner?
Under the provisions of the CTA, an individual is deemed to be a beneficial owner if one or more of the following describes the person’s involvement with the reporting company.
- Directly or indirectly have a significant ownership stake in the company;
- Exercises a major influence on the reporting company’s decisions or operations;
- Owns or has control of at least 25% of the company’s shares.
Beneficial Ownership Report Submission Requirements
Both domestic and foreign companies are required to submit BOI reports. Domestic companies include LLCs and corporations. Foreign companies are those registered to conduct business in the United States.
- Qualifying reporting companies created before January 1, 2024, must submit the Beneficial Ownership Information (BOI) Report no later than the deadline of January 1, 2025.
- Reporting companies registered or established between January 1, 2024, and January 1, 2025, have 90 days from inception to file.
- Businesses established on or after January 1, 2025, will have 30 days from notification or public announcement of their formation to submit their first report to FinCEN.
There is no charge to businesses that submit BOI reports. Electronic filing forms are available on FinCen.gov website.
FinCen has not announced an annual reporting requirement. However, there are requirements to update the original submission when beneficial ownership changes occur. Examples that may trigger an update include beneficial owner changes to:
- Address;
- Name change due to marriage or divorce;
- Obtaining a new driver’s license.
Additionally, changes to a person’s span of authority or duties may be considered events that establish substantial control of a business … and qualify the individual as a beneficial owner.
Note: The reporting timeline for these types of changes may be as short as 30 days.
FinCen Alert
FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages or click on any links or scan any QR codes within them.
Key Takeaway
FinCen is not directly notifying companies to file the above report. If your business is required to report, you must initiate submission of the required forms.
The foregoing is meant as an overview only. There is more to consider. Give us a call and we’ll help you determine your company’s status under the CTA plus help with reporting if necessary.
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