Maybe we live in a world where corporate transparency and protection from terrorism is paramount. Maybe, on the other hand, we’re living in a time when the government continues to overreach more and more each day and intrude on our private lives, all at the expense of small businesses. Whatever your point of view on the federal government’s Corporate Transparency Act (“CTA”), it’s important you understand how it will affect your business with groundbreaking updates that became effective on January 1, 2024.
Why The CTA Matters For Your Business
Effective January 1, 2024, the CTA requires most every business in our country – and especially smaller businesses – to report certain personally identifying information to the federal government about the company’s “beneficial ownership interests” (“BOI”), which include owners, officers, managers, and others. The agency in charge of managing the reporting is the Financial Crimes Enforcement Network, also known as FinCEN. FinCEN will collect information about small business owners and managers that includes things like legal name, date of birth, address (which much be an actual street address and not a post office box), SSN, passport number, and more. This means more paperwork and less privacy for our country’s business owners, and if that alone weren’t a kick in the nuts for the small businesses that make our country go ’round, large business enterprises are exempt from these reporting requirements. (Can you guess which side of this debate we’re on? The side of the small business owner, of course.)
Failure to report can result in both civil and criminal penalties, so don’t let this paperwork requirement fall by the wayside for your business. Read this blog post thoroughly to understand the highlights of the CTA and FinCEN reporting rules, and if you still have questions, don’t hesitate to schedule a consultation with our business lawyers to discuss exactly what you need to do about this new law, and how to get it done.
To What Businesses Does The CTA FinCEN Reporting Requirements Apply?
Answer: Pretty much every small business. If your business is formed by filing paperwork with your state’s Secretary of State (or similar state agency), then the reporting requirements apply. This includes corporations, limited liability companies, limited partnerships, and business trusts. But, if you’re not a small business, you might be exempt.
What Businesses Are Exempt From the CTA FinCEN Reporting Requirements?
Entities subject to federal securities laws, banks, credit unions, and insurance companies fall outside the CTA’s scope, so they don’t need to file reports. Similarly, “large companies” do not have to report. A “large company” is a company: (a) with 20 or more full-time employees in the United States (not counting subsidiaries and related entities); and (b) companies with gross receipts over $5 million showing on the company’s tax return in the prior fiscal year. What a way to support small businesses, right? (Note the sarcasm.)
There are also a few very limited industries to which FinCEN BOI reporting does not apply. These include banks, some nonprofits, and limited other businesses. You can learn more about exempt entities here.
What Information Does My Small Business Have To Report?
If your business is subject to the CTA FinCEN reporting requirements, then you’re required to report personally identifying information about your “beneficial owners” to the federal government’s FinCEN division. This includes detailed information such as legal names, addresses, state of formation, and Federal Taxpayer Identification Numbers (“TINs”). (Yes, a social security number is a TIN.)
Who Is A Beneficial Owner?
The CTA defines beneficial owners as individuals those who either: (i) exercises substantial control over a company; or (ii) holds 25% or more of a company’s ownership interests. In true federal government fashion, this isn’t as clear as it might sound at first blush. We know that LLC managers, presidents, CEOs, CFOs, COOs, and likely general counsel, must be disclosed because the government rules say they exercise substantial control. But, other officers and employees might be included in this list.
Similarly, the test of individuals holding 25% or more of an ownership interest in a company is also not cut-and-dry. The regulations require companies to consider stock options, convertible instruments, contractual voting agreements among owners, and more.
Given the substantial grey area in these disclosure requirements and who may or may not be a “beneficial owner”, we highly recommend you work with your business attorney to make sure you’re properly identifying those individuals and entities. If you don’t already work with a business attorney you love, click here to schedule with one of our attorneys.
What Does FinCen Need To Know About My Business’s Beneficial Owners?
For each of your business’s beneficial owners, you’ll need to report full legal names, dates of birth, and specific identifying information like driver’s license numbers, social security numbers, and/or passport numbers.
When Does My Small Business Need To File FinCEN Reports?
If your company was formed before January 1, 2024, you must file by January 1, 2025. If your company was formed on or after January 1, 2024, you must report your BOI within 30 days of formation. (Note there is talk of extending this to 90 days from 30 days, but at the time of this writing, the requirement is 30 days.)
After your initial filing, you have a continuing obligation to report changes in your company’s BOI. Anytime your company’s BOI changes – whether that’s a change in beneficial owners or simply an address or name update of a beneficial owner – you must file those updates with FinCEN within 30 days.
What Happens If I Don’t Report My Company’s BOI to FinCEN, Or Don’t Report In Time?
Failing to comply with the FinCEN BOI reporting requirements can expose both you and your company to civil or criminal penalties. A person who willfully violates the FinCEN BOI reporting requirements may face civil penalties of up to $500 for each day that the violation continues. Or, you may up to two years in jail and a fine of up to $10,000. These penalties apply not only for wilfull failure to file, but also wilfull failure to file on time, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
How Do I File My BOI Reports with FinCEN?
If you’re a member of our firm with an active legal subscription at the Business Basics level or higher, you don’t need to worry – Skepsis Legal will file your FinCEN BOI reports and all required updates for you, at no extra charge.
FinCEN has developed an online filing system where you can file your reports. Paper reports are also available to download from their website.
Conclusion
We urge you to write to your congressperson to help them understand that these privacy and compliance burdens that specifically target our nation’s small business owners is inappropriate and counter-productive. But until our legislators learn how important small business really is to our nation, our businesses will be forced to comply, and we highly recommend speaking with a qualified business attorney to make sure you’re meeting your compliance obligations.
For further details and a comprehensive list of exempt entities, refer to FinCEN’s guidelines and FAQs available on their website.
