The Corporate Transparency Act was passed in 2019, and updates requirements for many small businesses to report ownership details to the Financial Crimes Enforcement Network, commonly referred to as “FinCEN.” This rule is now being enforced against the majority of small businesses. It requires that you report Beneficial Ownership Information to FinCEN, that is the individuals with controlling interest in your business.

What Businesses Does This Apply To?

CTA compliance in 2024 applies to the vast majority of small businesses incorporated in the U.S. This means LLCs, S Corps, and C Corps, and is in addition to other LLC reporting requirements. Pass-through businesses taxed as individuals are not affected (as their ownership information is already being reported with their taxes). This includes if you have filed a DBA, obtained an EIN, or have a professional or occupational license.

23 types of entities are currently exempt. This includes publicly traded companies, certain large operating companies, and many nonprofits. However, these rules do not apply to the majority of small and medium-sized enterprises. However, you don’t have to file if your business is one of the following:

• Money services business
• Broker or dealer in securities, or any entity registered with the Exchange Act
• Investment company or adviser
• Venture capital adviser
• Accounting firm
• Inactive

It’s best to double-check with a legal or tax advisor before applying for an exemption, as you might well go to the trouble of applying and then have to file anyway. In most cases, exempt companies must file this information through other means. FinCEN enforces the Corporate Transparency Act and provides guidance.

What Is a Beneficial Owner?

The Act requires that you provide the identity of all “beneficial owners.” This means an individual who owns or controls at least 25% of the company and/or exercises substantial control over it. Beneficial owners are limited to natural persons, so trusts, corporations, or other legal entities are not beneficial owners.

“Substantial control” includes being a senior officer such as President or CFO, having the authority to appoint or remove officers, making important decisions, etc. Important decisions mean reorganizing the company, mortgaging a principal asset such as your office, and selecting or terminating business lines. List the person if in doubt.

Some individuals might be exempt from being listed. There are five exemptions:

• The individual is a minor, so list their parent or guardian instead.
• The individual is an agent of a beneficial owner, such as a tax advisor.
• The individual is an employee, but not a senior officer.
• The individual has a future interest through a right of inheritance, such as a will.

When Do You Need to Report By?

If your company was formed before January 1, 2024, you have until January 1, 2025, to file your report. Companies formed from January 1, 2024, have to file their report within 90 days of being formed.

If you have a change in beneficial owners, for example, if your CFO quits, file the update within 30 days. Also, file an update if certain information changes, such as if a beneficial owner moves.

What Are the Consequences for Not Reporting?

There are significant penalties for not reporting your BOI in the required timeframe. These could include civil penalties of $500 for each day you have a violation and potentially criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers may be held responsible.

Individuals who refuse to provide the required information or update it (for example, refusing to update their address) may face civil and/or criminal penalties, and you should warn them appropriately.

The BOI report can be handled by most business owners with assistance from resources provided by FinCen. Visit their FAQ Page and their Brochure Introduction to Beneficial Ownership Reporting for more details. If you have questions about your reporting requirements or need assistance reporting, our team at Brenden Kelley Law can help you. Contact our office to schedule a meeting today.