A new law that went into effect in January 2024 may require small business owners to report detailed information about ownership to the government. The Corporate Transparency Act (CTA) was enacted in 2021 as part of the National Defense Authorization Act, and its goal was to prevent money laundering, tax fraud, terrorism financing, and other financial crimes by requiring companies to disclose information about their owners. The 2024 CTA law requires certain businesses to disclose information about their beneficial owners and company applicants to the Financial Crimes Enforcement Network (FinCEN). For most eligible businesses, the filing deadline is January 1, 2025 - failing to file in a timely manner could potentially result in prison time and fines, as well as civil penalties.
The CTA applies to domestic and foreign entities that are corporations or limited liability companies registered to do business in the United States. If a business meets the criteria, it must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network. Previously, to prevent money laundering and other financial crimes, the burden was placed upon financial institutions to know their customers, monitor their customers’ financial actions and report suspicious behavior. Now, businesses themselves are required to file corporate transparency reports with beneficial ownership information, and that information may then be used by law enforcement agencies in criminal investigations.
Though there are multiple exemptions, if you are a corporation or a limited liability company engaged in the industries of transportation or natural resources, you are required to file a report. The required information is not complicated, but it may feel unduly burdensome if you have multiple individuals you are required to report. Once you set up an account for the business, you need to enter the identity of each owner, including residential address, and upload an image of each person’s driver’s license, or other government-issued identification. While the CTA does not require businesses to submit annual reports, the initial filing period may not be the only time you’ll be required to submit information.
Not every owner of a business must file a report. According to the CTA, an individual qualifies as a beneficial owner if they directly or indirectly have a significant ownership stake in a company. This person either has a major influence on the reporting company’s decisions or operations, owns at least 25% of the company's shares, or has a similar level of control over the company's equity. Once filed there are several significant events which may require submitting an updated filing, for example: if the beneficial owners change, if a reported owner changes its name due to marriage/divorce, or changes its residential address.
The Department of Transportation has created a website for these reports to be filed online: https://boiefiling.fincen.gov/
If, as a business owner, you’d like to know whether or not you need to file a report, or if you believe you need to file one and have questions about your reporting requirements, please feel free to contact Todd Knode (tknode@setlifflaw.com) at (804) 377-1277 or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.
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