A new law forces almost all small business to make a filing with the federal government or face financial penalties and jail time! As of January 1, 2024, all owners of limited liability companies or corporations MUST submit their Beneficial Ownership Information to the Financial Crimes Enforcement Network (also known as FINCEN).
This new requirement is part of the Corporate Transparency Act (CTA). Currently in the United States, most state governments do not require the person who files for a new business entity to declare who the real owner of the entity is. The law was passed because of concerns about money laundering, national security (foreign governments buying up land with shell companies), and other bogeymen that are typically used to justify continued incursions on privacy.
The feds already have this information in the form of annual tax returns that are filed with the IRS. Thus, the new law will merely criminalize small business owners who don't know about the law, while getting the data directly from the business owners (instead of having to obtain the data that the IRS already has).
The good news is that for most people it is VERY easy to comply. All you have to do is register each beneficial owner of up to 25% of the business entity. (Sidebar: FINCEN defines "owner" as individuals who directly or indirectly exercise substantial control over the LLC or own at least 25% of its ownership interests." So, if you have multiple owners of the business, or if you own multiple related businesses, you should err on the side of seeking legal counsel to make sure you are following the requirements.)
For entities formed before January 1, 2024, you have until December 31, 2024 to submit this filing. For new entities formed in 2024, the filing must be submitted within 90 days of the new entity formation date. You also have an ongoing obligation to update any changes to information that you submit within 30 days, or else you face penalties and potential jail time.
Speaking of penalties, what are we talking about here? $500 per day in civil penalties, up to $10,000 criminal fine, and 2 years in federal prison. These penalties are a bit overkill for the average business owner, but Uncle Sam likes to have a lot of enforcement mechanisms.
Details of Compliance
What: The registration information that you must provide consists of your full name, date of birth, address, and a copy of a valid passport or driver's license. You'll also need the Employer ID Number and address for the business.
Who: Individuals who directly or indirectly exercise substantial control over the LLC or own at least 25% of its ownership interests. There are 23 different types of exemptions, most notably, inactive companies and non-profits. There is a list of 6 criteria you must meet for the "inactive company definition". If your company was created after 2020, it is not "inactive" under the CTA, even if it is inactive.
When: By December 31, 2024 for entities created before January 1, 2024. Within 90 days of entity formation for entities formed this year. Within 30 days of entity formation for entities filed starting on January 1, 2025.
How: Just file by going here: https://boiefiling.fincen.gov/boir/html.
For most companies, you should be able to file on your own, without an attorney. I would advise owners of multiple companies or owners who have entities that own other entities to either err on the side of disclosing all owners or to seek legal counsel. I am happy to help provide an opinion on whether a filing is needed, or to make the FINCEN filing on your behalf.
And remember, if you change your address or if ownership changes, you must update the report within 30 days or the clock starts ticking on a potential $500 per day penalty.
You can find the FINCEN FAQs here: https://www.fincen.gov/boi-faqs#H_1